Battle Over Privacy Best Avoided by Google and Facebook – Ask Bank of America

Joe Public is raising quite a stink about Google (GOOG) and Facebook attempts to sell more and more of his personal information for corporate gain. Perhaps both companies should make nice as quickly as possible. A lot of banks, colleges and telemarketers that fought an offended populous in similar battles probably wish they’d taken the high road instead.

Numerous corporations that tried to extend their power beyond what the citizenry deemed acceptable still whine about the money lost. The cost of facing down the public, it turns out, can continue long after the legal bills are paid.

Consider what happened to banks in recent years when they overstepped the boundaries of publicly-acceptable profit-making. Public ire over hefty fees for unsolicited overdraft protection and high charges to merchants for debit card transactions led to regulations that put a kibosh on those and other lucrative fees – and permanently cut billions from bank revenues. Bank of America (BAC), for example, says it lost $430 million in revenue last quarter alone because of the new regulation and estimates an annual related loss of $2 billion.

Bank of America Corporation Revenues Chart

Bank of America Corporation Revenues Chart by YCharts

The banks are bitter – and diligently looking for new fees to replace the old ones – but lessons were learned. Last year, BofA had the good sense to yank a plan to charge debit card fees when the public outcry built.

For-profit colleges ran afoul of public sentiment as some of their graduates realized they’d never make the kind of money the recruiters had promised, and the government realized it wasn’t getting a lot of its money back on these student loans. But the colleges eventually averted a bank-like crimp on future earnings by working to appease the public rather than fight it. Self-imposed practices aimed at reigning in recruiters and rejecting applicants unlikely to finish their degrees have kept regulation at bay and share prices aloft.

Corinthian Colleges Stock Chart

Corinthian Colleges Stock Chart by YCharts

Telemarketers all but put themselves out of business by fighting a public that wanted them to stop their relentless badgering. They got the Do-Not-Call Registry out of that battle.

Google and Facebook are in hot water for trying to make money off of their users’ personal information in new ways. Google already sells information about individuals that it collects from things like his online searches, or smartphone locations or email uses, but it wants to broaden the places it sells that data. Friends on Facebook only recently figured out that the company was tracking what they did when they left the site as well as when they were on it. As a result, politicians and states attorneys general have threatened new restrictions on online marketing that could hurt both companies.

There’s reason to believe both companies are on solid ground if they want to fight for these marketing tactics. No one is forced to use Google or Facebook, and Joe Public gives tacit permission for them to monetize his personal information when he uses their free services. But really, he’s still getting used to the idea, and his grandmother never will.

For the companies’ long-term success, grace may be the better tactic in this battle. A quiet retreat from the most offensive money-making strategies now might go a long way toward ensuring that those revenue streams remain reasonably regulated and available to them in the future. Google’s market cap, after all, is $196.34 billion, and the company can afford the wait. Facebook’s planned initial public offering’s high end, at about half that value, buys it plenty of time, too.

Google Cash and Equivalents Chart

Google Cash and Equivalents Chart by YCharts

Because if Google and Facebook do lose revenues in a fight like this, the only people crying over their lost opportunities will be their shareholders.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.



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