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Facebook Inc (FB), Google Inc (GOOG), Microsoft Corporation (MSFT) & Apple Inc. (AAPL): Why Big Tech’s Privacy Concerns Are Overblown

Lately the news has been in an uproar over the American surveillance program, PRISM. The government program sucks up data collected by major tech companies. If consumers placed a premium on their privacy, this would spell trouble for many large tech firms that make their living by collecting all sorts of personal data. The reality isn’t that grim for America’s corporate giants. Recent polls suggest that 45% of Americans support the government tracking everyone’s online activities.

Facebook Inc (NASDAQ:FB)

Government tracking of electronic activity isn’t a surprise

The media uproar over PRISM is overblown. For years it has been obvious that the U.S. government has been engaged in widespread tracking of electronic data. Researchers have known that government agencies installed tracking technology in the internet’s backbone to siphon off as much data as possible. The NSA is building new datacenters with massive storage capacities, perfect for analyzing mountains of data.

Is the tech industry a willing participant?

It is important to note that almost every major tech company has denied that they have given the U.S. government unlimited access to their servers for the PRISM program. This suggests that the government is plugging itself directly into the internet backbone and siphoning off data without having to ask for permission. By framing the narrative in this manner, corporations can frame the conflict as the government against the people and private corporations, not the government and private corporations against the people.

AAPL data by YCharts

The impact on the bottom line

Facebook Inc (NASDAQ:FB) is one of companies most exposed to potential privacy concerns. While search engine operators record users’ searchers and search locations, Facebook has access to more intimate information. Facebook knows who your friends are, where they live, where you live, and a host of other personal data. The fact that billions of people have already put their personal data on Facebook Inc (NASDAQ:FB) suggests that the majority of people are fine with giving a corporation such private information.

Facebook’s claim to fame is their ability to sell demographic ads. While competitors are forced to guess individuals’ demographics based upon the sites they visit, users tell Facebook Inc (NASDAQ:FB) their sex, birthday and a host of other data points. With a slim profit margin of 0.3%, an earnings before interest and taxes (EBIT) margin of 9.4% and earnings per share (EPS) of $0.01, Facebook needs all of the money their demographically targeted ads offer.

Privacy concerns play a less important role in Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT). Still, both of these companies operate world class search engines and need users’ data to help improve their results. Google’s Gmail service and Microsoft’s Hotmail give both companies an intimate look at users’ personal email and communications. While neither company has a social network with the popularity or data of Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) have access to a large amount of personal data that plays an important role in product improvement.

Google’s fat EBIT margin of 25.3% and profit margin 20.9% give it billions of dollars it can spend on a good PR company to sway the privacy discussion in its favor. Also, it is encouraging to see that Google Inc (NASDAQ:GOOG) can maintain a 14.3% return on investment without Facebook’s level of personal data.

Microsoft Corporation (NASDAQ:MSFT) is in a similar position to Google. Its EBIT margin of 28.9% and profit margin of 21.6% give it a large budget to spend on marketing and public relations. With Microsoft’s profitable software business and ROI 18.5%, it has the money to wait out the current privacy discussion.

Apple Inc. (NASDAQ:AAPL) is one of the companies least exposed to the current privacy discussion. The company sells computers, smartphones, tablets and other products. It does not have access to the data generated by the world’s largest social network or the world’s largest search engines. The company has access to some users’ files through its iCloud product. Regardless, privacy concerns are a comparatively small part of Apple Inc. (NASDAQ:AAPL)’s risks.

The company is highly profitable and has billions of dollars of cash it can use to influence the media’s discussion of privacy concerns. With a gross margin of 42.5%, an EBIT margin of 31.5% and a profit margin of 23.5%, Apple Inc. (NASDAQ:AAPL) can easily pay a powerful PR companies to try and use privacy scares to hurt Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB).

Conclusion

Big tech companies collect mountains of data and governments get their hands in these databases. Polls show that 45% of Americans find this to be perfectly acceptable. Regardless, Facebook could face some damage from the PRISM program, because its data is so personal. Microsoft Corporation (NASDAQ:MSFT) and Google will face more questions about how they treat personal emails and data from their search engines, but overall they remain profitable companies. Apple Inc. (NASDAQ:AAPL) could end up benefiting from this recent media scare as it has comparatively little personal data and is very profitable.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT).

The article Why Big Tech’s Privacy Concerns Are Overblown originally appeared on Fool.com.

Joshua is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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