Technology | Rising privacy concerns depress value growth
Brands respond with reassurance and new practices
Just a few years ago, technology brands were soaring. Consumers loved them because they improved life, and businesses feared them because they disrupted entire categories. Times have changed. Privacy abuses disappointed consumers. New devices seemed less shiny, more iterative. And regulators looked more closely at the industry, even in China. The BrandZ™ Technology Top 20 rose only 4 percent in value compared with 28 percent a year earlier.
The storm of criticism initially swirled around Facebook because of stealth use of its site to affect the results of the 2016 US presidential election and the Brexit Referendum. Revelations that Facebook had inadequately protected the personal data of its users intensified consumer disapproval and raised their suspicions about other technology brands.
At the same time, the imminent introduction of 5G, the acceleration of the Internet of things, and the development of artificial intelligence and voice personal assistants suggested that the tension between data collection and privacy would only intensify. As Facebook and Apple announced major changes to their business models, industry introspection paralleled government intervention.
The EU implemented the General Data Protection Regulation. Executives from Facebook and other technology brands appeared at congressional hearings to support privacy regulations. Although the US did not promulgate national privacy laws, in 2020 a wide-reaching data projection law, giving consumers greater control over their own data, will go into effect in California, home to Apple, Google, and Facebook.
Altering the value exchange
Facebook’s public relations problem was compounded by the timing of the congressional hearing, which came as Facebook introduced its Portal, a screen-based device for video chats with a camera and microphone capable of following the user around a room. At a time when consumers wondered if their virtual assistant was listening to private conversations, the new concern was whether it was also watching.
The privacy breaches highlighted the contrasting business models between brands that charge for their products and services, like Apple, and brands like Facebook that offer a free service and monetize data. The privacy breaches called into question this value exchange. Facebook decreased 2 percent in value this year, its first decline since 2013. BrandZ™ data reveal that the Facebook had been declining steadily over the past six year in a key drivers of brand equity.
To address these concerns and reposition the brand for changing market dynamics, Facebook announced a fundamental revision of its business model. It planned to integrate some of its component services, including WhatsApp, Facebook Messenger, and Instagram. The new arrangement would make Facebook more like WeChat, the Tencent-owned platform that is ubiquitous in China. Messages would be encrypted, which would address privacy issues, but also challenge a business model based on selling advertising to reach relevant audiences.
With the smart phone market reaching saturation, and premiumization reaching its limits, Apple decided not to release its iPhone earnings, signaling that it wants to be perceived not as a device brand, but as a technology ecosystem with many branded devices and services. It announced three new service businesses: a streaming service that offers original content from well-known actors and directors, like Steven Spielberg; a news subscription service providing access to a wide range of newspapers and magazines; and Apple Arcade, a gaming service.
These businesses are in addition to Apple Music, a streaming service launched in 2015. Apple expects to make money from revenue rather than from monetizing the personal usage data. In a separate initiative to increase fees from services, Apple entered into a partnership with Goldman Sachs to issue a co-branded credit card.
Google also faced difficult issues, including criticism by its own employees about work being conducted with China, other work conducted with the Pentagon, and the company’s response to sexual assault allegations against several former executives. But Google continued to dominate search and refine it further using its expertise in artificial intelligence. YouTube and Gmail, with reportedly over 1.5 billion users, remained a key way people communicated, and Google Maps was key to how they navigated.
Although technology stocks initially weakened because of privacy concerns, they quickly recovered. In counterpoint to Facebook’s problems, Instagram, the photo sharing site Facebook acquired in 2012, increased 95 percent in value, making it the fastest-rising brand in the 2019 BrandZ™ Global Top 100. Ultimately, the technology brands exhibited significant resilience because of the uniqueness of the brand offering, and also the degree to which consumers are enmeshed in their ecosystems because of the convenience and other benefits. Plus, disengaging from an ecosystem is painful, like leaving a banking relationship. Unlike the banks, however, technology brands have been trusted and loved. Their challenge is to keep it that way.
Changing competitive landscape
Chinese consumers seemed relatively less concerned about sharing their personal data with technology brands, particularly Tencent’s ubiquitous WeChat app, in exchange for a life of smartphone-enabled speed and convenience unmatched anywhere else in the world. Among the BrandZ™ Top 100 Newcomers this year is Meituan, the technology-enabled lifestyle platform with which people can arrange for a broad range of services, from booking a restaurant to renting a bike.
While Chinese brands were unaffected by consumer privacy concerns, some were impacted by government intervention. Concerned that online gaming was addictive, the government imposed restrictions that reduced an important revenue stream for Tencent, ranked No. 8 in the BrandZ™ Global Top 100. Late in the year, revenue from advertising and cloud computing began to offset the gaming revenue shortfall. Around the same time, Tencent listed its music business on the New York Stock Exchange.
China is the next-most represented country in the BrandZ™ Technology Top 20, after the US. Chinese smartphone maker Xiaomi entered the category ranking for the first time. Xiaomi derives most of its revenue from its smartphones, which are packaged with a premium look but sold at relatively affordable prices, while the brand collects revenue from ads fed to its devices.
Meanwhile, Xiaomi is also developing services to build a community around the brand. Besides its popularity in China, Xiaomi is the No. 1 smartphone in India and Spain, where it debuted its aggressive move into Europe. These developments illustrate the increased presence of Chinese technology brands in the West and the changing competitive landscape.
Apple surpasses Google on key metrics…
Apple improved its global average scores slightly year-on-year in the five aspects of vQ, a BrandZ™ measurement of brand health, while Google’s declined somewhat in Brand Purpose and Love. Scores for both brands remain strong, but the changes may reflect consumer concerns about privacy and the rate of innovation.
… Facebook weakens in key metrics…
Facebook dropped slightly in value, 2 percent. Facebook’s brand equity remained strong, although not as strong as it was. Concerns over privacy and misuse of the site especially impacted Facebook over the past year, but the brand has been steadily declining in being seen as Meaningful and Different, the two underlying dimensions of brand equity.
… And a new generation of Chinese tech brands emerges
A new generation of Chinese technology brands entered the BrandZ™ Global Top 100, bringing the total of Chinese technology-related brands in the ranking to nine, although three of the “trailblazers” lost value. Two of the newcomers, the online services platforms Didi Chuxing and Meituan, score especially high in Purpose, Innovation, Communication, Experience, and Love, the components of vQ, a BrandZ™ measurement of brand health.
Brand Building Action Points
- Control the narrative
Brands that take control of the narrative can break through some of the white noise about the data breaches. Brands could consider an industry approach to mutual concerns. But it would need to be more than lobbying. It would need to be about real change.
- Be transparent
Consumers are much more aware that they get nothing for free. If they are not paying with money, they are paying with personal data. Consumers have accepted this modern expression of a barter economy. They are less accepting when the value exchange is unclear or dishonest. The value exchange needs to be transparent and, when in doubt, it needs to tip to the consumer.
- Strengthen the brand
Along with the convenience the cloud provides, it also potentially weakens the consumer connection with the device. If digital data in the form of news updates, music, business information, or leisure diversions are available by clicking and streaming, then the device potentially becomes just a delivery vehicle. The adhesion needs to be the brand and the differentiating brand experience.