But at what cost? Image source: Google.
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A couple years ago, Apple (NASDAQ: AAPL) CEO Tim Cook made a stand. The executive decided to make privacy a key battleground in Apple's war against Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). "You're the product," he said, if you give up your data in order to enjoy an online service for free. Cook's open letter from 2014 is still available on Apple's site.
In the ensuing (and ongoing) debate over privacy and whether or not we must sacrifice privacy in order to enjoy free online services that improve our lives, the issues have only gotten more complicated. Particularly with the rise of virtual assistants, which are effectively a form of artificial intelligence (AI), the conversation takes a whole new form. On last night's earnings call, Cook made it clear that when it comes to privacy, users should be able to have their cake and eat it, too:
In terms of the balance of privacy and AI, this is a long conversation. But at a high level, this is a false trade-off. People would like you to believe you have to give up privacy to have AI do something for you, but we don't buy that. It might take more work, it might take more thinking, but I don't think we should throw our privacy away. It's sort of like the age-old argument between privacy and security. You should have both. You shouldn't have to make a choice.
Let's back up a bit.
There is no inherent trade-off
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We've become all too accustomed to the fact that advertising pays for more than it should. But if we were to start fresh and think through it fundamentally, Cook is right: There is no inherent trade-off. It is "false." The privacy concerns don't arise from companies collecting data on us (unless there's some type of cybersecurity breach). The privacy concerns arise from companies sharing that data with others without our permission. And I don't just mean implicit permission, which you grant every time you agree to terms and conditions without reading them. I mean explicit permission; do you have any idea where all that data that you share with Google actually ends up? Neither do I.
If a company's revenue model is not predicated on sharing your data, then there are no intrinsic privacy concerns. If the company truly only collects the data in order to deliver a service to the customer, without that data being shared beyond those two parties, then there is no trade-off. Apple does not monetize user data directly; it monetizes hardware products that are integrated with software and services, which are strengthened with user data. Google does monetize user data directly; it monetizes software and services predominantly via advertising that is targeted with user data, while at times using hardware as a delivery mechanism.
You can also see why some would have a vested interested in perpetuating the perception that this trade-off not only exists, but is also a requisite for online services. The "people" that Cook is referring to, as it were. If you accept the trade-off, it's suddenly much easier for those entities to make quite a bit of money on you with little to no protest from you. It's just the way it is, you justify to yourself, particularly if the alternative is you paying out of pocket for some service. If that were the case, then perhaps the only solution is that we start paying for more stuff ourselves, but in return we get to keep a lot more of ourselves to ourselves.
This is what Cook is talking about, and he's right.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A and C shares), and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.