By now, you’ve likely heard about the privacy changes announced by Google and its parent company, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Since the changes were announced in mid-February, GOOG stock is down about 2.3%. However, all in all, it appears to be a good move for the company and its stock in the long term.
Simply put, Google’s privacy changes are putting the company squarely on the right side of history. User privacy is a big deal these days.
Consumers – and the stock market – will reward companies that are on the record as safeguarding consumer privacy. And they’ll punish those like Meta Platforms (NASDAQ:FB) that are seen as exploiting privacy rules for profit.
What Are the Privacy Changes?
On Feb. 16, Google announced it will be rolling out a series of privacy changes in about two years. The changes were announced by Anthony Chavez, vice president of product management for Android Security & Privacy.
He said the company’s goal is to create “effective and privacy enhancing advertising solutions” so that users know that their information is being protected. At the same time, the company is still interested in providing targeted advertising campaigns that are the core of Google’s lucrative advertising business.
Chavez goes on to explain:
[T]hese solutions will limit sharing of user data with third parties and operate without cross-app identifiers, including advertising ID. We’re also exploring technologies that reduce the potential for covert data collection, including safer ways for apps to integrate with advertising SDKs.
OK, so what does that mean? Through Google’s Privacy Sandbox, customer data will be captured, anonymized and aggregated. That should provide advertisers with information while helping protect consumer privacy.
However, the move will greatly hamper companies that rely on third-party cookies to gather information about potential customers. An example of a third-party cookie is the “like” button that Meta Platforms uses when its content is embedded on sites outside the Facebook platform.
Apple (NASDAQ:AAPL) rolled out similar changes on its iOS 14 platform last year, and it had an immediate impact on some companies. Meta Platforms, for instance, says the changes will cost it $10 billion this year.
Privacy Is a Big Deal
One of the biggest advantages to living in the 21st century is that everything is online. You can sit at your computer and with a few clicks of the mouse, the entire world is open to you.
You can look at works of art, read the best literature and research topics of interest. And when you want to kill time, there are plenty of games and social media sites to fill the hours. But with that comes a tradeoff. People’s entire lives are online. You can see their successes and failures. You can even find out where people live.
Platforms like Facebook help people stay connected. The more personal information you add, the more you can meet like-minded souls. But Meta Platforms also monetizes that information. You’re a product to a platform like Facebook, TikTok, Snapchat or any other social media site. Your personal information is being sold all the time.
“Privacy is about power, because information is power, and human information confers power over human beings,” says Neil Richards, one of the world’s leading privacy experts. “Privacy rules are essential because they constrain that power. We need good privacy rules to restrain the power of profiling, sorting, nudging, manipulation, and control over human behavior that human information confers.”
It’s no wonder that people are getting tired of Facebook. In the fourth quarter of 2021, the company reported its total number of users declined for the first time in its 17-year history. I expect that trend to continue.
What It Means For GOOG Stock
As I said, creating tools to help users safeguard their privacy puts Google on the right side of history. Just as environmental, social and corporate governance (ESG) funds tend to outperform, I think investors will reward GOOG stock.
While it’s still unclear exactly how the Google Privacy Sandbox will work, any moves the company makes to market itself as protecting user privacy will be rewarded by users and investors in the long term.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.