The Dance of Data: Exploring Deeper Implications of Privacy Concerns on Firm Performance
While the initial impact of Apple’s privacy labels on app downloads and revenue paints a clear picture, the consequences of this transparency ripple further than financial figures. Let’s explore the intricate relationship between data privacy and firm performance.
In today’s data-driven world, mobile apps have become ubiquitous, collecting vast amounts of personal information about users. While this data fuels innovation and personalised experiences, concerns about data privacy have grown increasingly vocal.
On December 5, 2023, a study, authored by experts from Wharton and titled “The Supply and Demand for Data Privacy: Evidence From Mobile Apps,” explored the intricate relationship between data privacy concerns and firm performance. Shankar Parameshwaran, the author of the study, alongside Wharton finance professor Huan Tang, shed light on the dynamics of user behaviour and financial outcomes in the global app market, particularly focusing on the influence of Apple’s privacy labels on its iOS platform.
Apple’s Privacy Labels and Their Impact
The study scrutinised the repercussions of Apple’s mandate for app providers to disclose their data collection practices through privacy labels, drawing parallels with nutrition labels on food products. This disclosure aimed to enlighten users about the extent and purpose of data collection by different apps available on the iOS platform. The findings revealed a notable shift in user behaviour,with apps experiencing a significant 14% drop in weekly downloads after the implementation of privacy labels. This, in turn, led to a 15% decrease in revenue from user subscriptions and in-app purchases compared to their counterparts on Google Play.
Apple’s proactive approach to enhancing data privacy involved requiring all app providers using its iOS operating system to fill out standardised and easily readable privacy labels from December 2020. The disclosure period for the study spanned from the date an app updated its privacy label to comply with Apple’s policy until August 2021. The disclosure revealed that approximately 60% of apps shared customer data with third parties, collecting an average of 16 data types and 24 data items, primarily for non-essential purposes.
The study underlined the financial implications of data privacy concerns, showcasing a tangible impact on the stock prices of publicly held app providers, especially those extensively involved in data harvesting. The global app market, which generated over $300 billion in 2020, faced disruption due to Apple’s privacy label policy, and projections suggested it would reach $600 billion by 2025.
Challenges and Limited Evidence in Data Privacy Debates
Despite ongoing regulatory efforts and public debates on data privacy, the study highlighted the scarcity of large-scale evidence on the subject. It sought answers to critical questions, such as the amount of privacy firms supply, the consistent measurement of the scope and purpose of data collection, and the translation of consumer demand for privacy into the valuation of firms monetising personal data. The study claimed to be among the first to delve into the real and financial implications of privacy-related practices in the mobile app industry.
The study also expanded its focus beyond the U.S., analysing user attitudes toward privacy across 95 countries. It found that app users in countries with stronger legal protection and better law enforcement regarding privacy were less influenced by Apple’s privacy labels compared to those in countries with weaker protection. Public trust in the media and major companies also played a significant role in shaping user choices.
Furthermore, the study uncovered nuanced characteristics associated with data collection by different app categories. Apps that collected more data tended to have a larger market share, a younger age, a higher rating, and more in-app purchases. Gaming apps emerged as the top data collectors for third-party advertising, while shopping apps led in multiple data uses, including advertising, analytics, and product personalisation. The intensity of data collection directly correlated with a decline in downloads and revenue, emphasising the impact of data privacy concerns on consumer behaviour.
The Privacy Paradox and a Call for Transparency
The study addressed the ‘privacy paradox’, challenging the inconsistency between users’ stated intent and their actions. It argued that consumers often share their data carelessly due to a lack of awareness about data collection practices. The upshot of the findings emphasised the need for transparency, asserting that when information about data collection becomes readily available and digestible, consumers act to protect their privacy by altering their app usage behaviour.
This transparency, the study suggested, could empower consumers and investors to discipline firms in the collection, use, and sharing of digital user data.
Find the Wharton study here.
