Months before social-media company Snap Inc. publicly disclosed slowing user growth, rival Facebook Inc. already knew.
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Late last year, Facebook employees used an internal database of a sampling of mobile users' activity to observe that usage of Snap's flagship app, Snapchat, wasn't growing as quickly as before, people familiar with the matter said. They saw that the shift occurred after Facebook's Instagram app launched Stories, a near-replica of a Snapchat feature of the same name.
In February, just before going public, Snap confirmed that its user base grew more slowly in the last three months of 2016 than the prior year. Snap's latest financial figures Thursday showed that its growth challenges persist.
Facebook's early insight came thanks to its 2013 acquisition of Israeli mobile-analytics company Onavo, which distributes a data-security app that has been downloaded by millions of users. Data from Onavo's app has been crucial to helping Facebook track rivals and scope out new product categories, The Wall Street Journal reported earlier this week.
Interviews with more than a dozen people familiar with Facebook's use of Onavo data show in detail how the social-media giant employs it to measure what people do on their phones beyond Facebook's own suite of apps. That information shapes Facebook's product and acquisition strategy -- furthering its already formidable competitive edge, the people said.
A Facebook spokesman said it is clear when people download Onavo what information it collects and how it is used. "Websites and apps have used market-research services for years," the spokesman said, noting that the company also uses outside services to help it understand the market and improve services.
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Alphabet Inc., through its Google Android operating system for smartphones, and Apple Inc. also have the ability to monitor how rivals' apps perform on their mobile platforms, but it isn't clear whether they use that information to shape their product road maps. Apple declined to comment. Alphabet unit Google didn't immediately respond.
Onavo's data comes from Onavo Protect, a free mobile app that bills itself as a way to "keep you and your data safe" by creating a virtual private network, a service used to encrypt internet traffic.
When an Onavo Protect user opens a mobile app or website, Onavo redirects the traffic to Facebook's servers and the action is logged in a database, according to Onavo's website and the people familiar with the system. Facebook's product teams can analyze the aggregated data to get detailed information on things such as which apps people generally are using, how frequently, for how long, and whether more women than men use an app in a specific country. If data inside an app isn't encrypted, the information can be as specific as the number of photos the average user likes or posts in a week.
Onavo Protect has been downloaded an estimated 24 million times, mostly on Android devices, according to app-research firm Sensor Tower. It isn't clear how many people use it regularly.
"Instead of converting data for the purpose of advertising, they're converting it to competitive intelligence," said Ashkan Soltani, an independent researcher and former chief technologist for the Federal Trade Commission. "Essentially this approach takes data generated by consumers and uses it in ways that directly hurts their interests -- for example, to impede competitive innovation."
Facebook's use of Onavo on iPhones could violate its agreement with Apple, said Adam Shevell, an attorney with Wilson Sonsini Goodrich & Rosati who advises startups and large tech companies that publish apps. That is because Facebook is using Onavo to gather information to improve Facebook, he said, whereas Apple's developer agreement allows apps to use data "only to provide a service or function that is directly relevant to the use of the Application, or to serve advertising."
Apple and Facebook declined to comment on this matter.
Within a few months of Facebook's acquisition of the Tel Aviv-based company in 2013, Onavo's data paved the way for the social-media firm's biggest deal, the February 2014 purchase of WhatsApp for what eventually was $22 billion, the people familiar said.
Onavo showed the messaging app was installed on 99% of all Android phones in Spain -- showing WhatsApp was changing how an entire country communicated, the people said. That metric in particular put Facebook on notice, the people said.
Onavo also helped shape Facebook's live-video strategy, other people familiar said. Employees could see usage patterns for live-video apps such as Meerkat and Twitter Inc.'s Periscope, one person said. That helped guide Facebook's decision to add a live-video feature to its main app in early 2016.
With Snapchat, one of Facebook's biggest rivals, Onavo, at one point, revealed information as detailed as how many Snaps were sent every day.
A year ago, Facebook began rolling out disappearing photo and video strings on Instagram called "Stories", similar to the identically named feature on Snapchat, which spurned Facebook's acquisition attempt in 2013.
After seeing Snapchat's growth slow, Facebook rolled out the Stories format across all its major apps: Messenger, WhatsApp and Facebook.
--Tripp Mickle and Jack Nicas contributed to this article.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com and Betsy Morris at firstname.lastname@example.org
(END) Dow Jones Newswires
August 13, 2017 07:14 ET (11:14 GMT)