Did the FTC Cripple Facebook's Billion Dollar Baby?

Last month, Facebook  (NASDAQ: FB  )  announced the $19 billion acquisition of popular texting app company WhatsApp. Both companies claimed at the time that Facebook wouldn't mine the data of WhatsApp users. The Federal Trade Commission has now ensured that these companies stick to their word, unless they receive consumer consent first. Did the FTC cripple Facebook's ability to utilize WhatsApp?  

Source: WhatsApp

The high price tag of WhatsApp raised eyebrows because the service only charges users about a dollar a year.   Facebook believes WhatsApp can eventually grow to a billion users -- and a billion dollars per year. That monetization model didn't seem like the primary reason Facebook purchased the company, though. Facebook's main business is advertising, and a full 90% of fourth quarter revenue came from that source. Better data helps better target that advertising.

So has Facebook lost its ability to use WhatsApp to the full advantage? 

FTC lays down the law 
The FTC used its acquisition approval to warn both companies against going back on the promises not to collect data. Bureau of Consumer Protection Director Jessica Rich wrote

Before changing WhatApp's privacy practices in connection with, or following, any acquisition, you must take steps to ensure that you are not in violation of the law or the FTC's order. First, if you choose to use data collected by WhatsApp in a manner that is materially inconsistent with the promises WhatsApp made at the time of collection, you must obtain consumers' affirmative consent before doing so. Second, you must not misrepresent in any manner the extent to which you maintain, or plan to maintain, the privacy or security of WhatsApp user data...Finally, if you choose to change how you collect, use, and share newly collected WhatsApp data, we recommend that you offer consumers an opportunity to opt out of such changes or, at least, that you make clear to consumers that they have an opportunity to stop using the WhatsApp service.  

So what does this mean for Facebook's usage of WhatsApp? Can the social networking giant only count on the revenue from the subscriptions?  

Will the FTC's requirement matter? 
It's doubtful that Facebook was planning to never mine WhatsApp user data, so the FTC's requirement simply means that Facebook will have to let users know when that day comes.

Facebook doesn't have the best track record for setting up an opt-in for any type of privacy setting. The choices tend to remain somewhat hidden at best and hard to decipher at worst. On the mobile app, the notification of data collection would presumably sit in a more prominent position. 

Will that matter? Facebook's previous privacy mishaps haven't stopped the social network from attracting and retaining members. Facebook also isn't easily replaceable for daily users, though. WhatsApp has a number of free competitors that users could choose instead. A person might stick with WhatsApp regardless of the data mining if it's the service that most of his or her friends use, however.  

At the time of the acquisition announcement, WhatsApp had 450 million monthly active users. About 70% of these used the app daily. That represents a high and growing number of interconnected relationships relying on the app. While a data sharing opt-in might send some scurrying, it likely wouldn't results in a crushing blow.   

Foolish final thoughts 
The question of whether the FTC decision will cripple WhatsApp will eventually come down to the percentage of users who are against data collection. The sheer popularity of the app might force users to stick around if friends don't leave, however.

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Brandy Betz

Brandy Betz has written for The Motley Fool since 2011 and primarily covers health care, ETFs, and dividend stocks. You can follow her on Twitter @BrandyBetz.

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