Last year, it was Facebook that came under fire for privacy issues. This year, it is Sony Corp. (NASDAQ: SNE) and Apple Inc. (NASDAQ: AAPL).
In what Bloomberg columnist Paul Kedrosky anointed the “worst such debacle in modern financial/technical history,” an unauthorized person stole the names, addresses and possibly credit card data of 77 million Sony PlayStation users. As a consequence, the company had to shut down the PlayStation network losing customers, revenues and the credibility of its security systems.
Stock market darling Apple also faced heat over privacy issues Monday, when two iPhone users filed a class-action lawsuit alleging that the company is secretly recording movements of iPhone and iPad users.
In the Internet age, both cases illustrate the problems around privacy concerns and their possible effects on a company’s top-line growth.
In Sony’s case, such concerns have a direct effect on its top-line. This is because the issue raises uncomfortable questions about sharing sensitive financial data with service providers. Apart from the legal and financial issues involved, such data breaches can erode a company’s brand appeal and have an adverse effect on sales.
In Apple’s case, although the company has denied monitoring user location data, the larger question of privacy remains. In a “social networked” world, websites are increasingly using sophisticated algorithms to identify user preferences. To be sure, such information is already disclosed by the user in some instances. For example, Foursquare, one of the hottest start-ups currently, is premised on disclosing user locations. Similarly, Facebook Places is built around the concept of disclosing your current location with your network of friends on the site.
In both cases, however, users choose to disclose their locations. The question is whether it is valid and ethical for companies to share such information (location, in this case) with advertisers. Resolution of the privacy question will affect revenues for companies such as Google (NASDAQ: GOOG) that develop social products and depend on advertising as a revenue source.
While privacy concerns are a complex issue, organizational response to crises is not.
Sony exacerbated an already sensitive situation by remaining silent about it for a week even as its network was unavailable to users. No wonder the company’s stock has lost more than 6% since last week. This latest debacle coupled with the supply chain disruption due to the recent tsunami in Japan should keep the stock in a downward spiral for some time.
On the other hand, after initially scrambling to respond, Apple reacted swiftly to contain the damage. It released a statement regarding the privacy issue and even got the normally reclusive Steve Jobs to talk to the New York Times about the issue. The result was that the markets barely reacted to the news.
For both companies, however, the latest crises will sharpen focus on their privacy policies and security systems.
