The Mobile Arms Race: Why Privacy Is the Next Battleground

Apple vs Android

Recently, Apple and Google unveiled the latest iterations of their iOS and Android mobile platforms, respectively. While these were incremental enhancements from both companies, a war is brewing to make consumers’ smartphones even smarter, by using more personal data.

The two companies dominate the mobile platform space, and are now taking the fight to a new battleground that revolves around knowing users well enough to be proactively helpful, to deliver information that is contextually relevant and to make their devices act even more like a human personal assistant.

“From a purely technical standpoint, the platforms of Apple and Google are similar, but the perceptions are different,” says Wharton marketing professor Peter Fader. “Google’s [platform] is utilitarian and information oriented. Apple is design oriented.”

But each company has the same goal behind its strategy: “Each platform would love you to live your life there and help you do everything you want to do,” notes Wharton management professor David Hsu. “However, Apple is trying to take the higher ground on privacy Twitter .”

The Privacy Puzzle

It’s unclear how much privacy — or the perception of it — will matter in the mobile race toward “big data.” The concept of big data involves piecing together information from multiple areas to create new insights. This approach requires the consumer to share more in order to receive more personalized and relevant features. At the Google I/O developer conference in May, executives highlighted the search giant’s investments in artificial intelligence and machine learning.

“Data collected via mobile will be much more sensitive, more personal and more contextual.” –Thomas Husson

Whether it was Google Photos, which is designed to analyze and organize a person’s pictures, or the next iteration of Google Now and Android, the company said its algorithms will make life easier.

Anil Sabharwal, director of Google Photos, said the company’s machine learning will analyze photos so a customer can “make memories not manage them.” Sundar Pichai, senior vice president at Google, said the company has “the best investment in machine learning over the past many years.” Pichai added that Google is looking to deliver context and information that prompts users to take action.

Apple CEO Tim Cook is clearly hoping that privacy concerns will play a role in the latest mobile arms race — and that Apple’s stance will help it come out on top. At the beginning of June, Cook blasted Google indirectly while accepting an award from EPIC, a group that champions online privacy. Cook noted that some Silicon Valley companies have built their business by “gobbling up everything they can learn about you and trying to monetize it. We think that’s wrong. And it’s not the kind of company that Apple wants to be.”

At Apple’s WorldWide Developer Conference, Cook and his leadership team outlined how Apple is integrating a technology called Proactive Assistant into its latest iOS release. The technology will allow an iPhone or iPad to go through a user’s calendar, access his or her location and piece together information to be more helpful to the user.

But how is that different from Google’s approach? Apple executives emphasized that while the company’s devices will be able to get to know you better, none of that information will be uploaded and analyzed in the cloud. Many features in Proactive Assistant won’t require use of an Apple ID.

Cook is touching on an emerging topic in the tech industry about how information should be used and the trade-off between delivering free services and collecting data.

The University of Pennsylvania’s Annenberg School of Communication recently released a study showing that many U.S. consumers don’t think that sharing their data in exchange for more personalized services and better deals is a fair proposition. The Annenberg study found that Americans are unclear about the cost-benefit analysis of giving marketers data in exchange for perks. For instance, 91% of respondents said it isn’t a fair exchange if a company provides a discount for collecting information without permission.

Forrester Research found in an online poll of 20,000 adults that 63% of U.S. smartphone users are concerned about privacy and security. “No matter how quickly wearables and connected objects emerge in the next 10 years, mobility has already introduced a paradigm shift — the ability to collect and use data about individuals in the physical world,” Forrester analyst Thomas Husson said in a blog post. “Data collected via mobile will be much more sensitive, more personal and more contextual.”

The Data Race

Data and the features that can be built around customer information have become the current battleground in the mobile wars because tools like machine learning represent the last frontier in a mature market. “We’ve reached a period of incremental innovation, and Google and Apple are looking for the next big leap,” says Saikat Chaudhuri, an adjunct management professor at Wharton and executive director of the Mack Institute for Innovation Management.

The proactive personal assistant approaches offered by Google and Apple have the potential to usher in revolutionary changes, says Chaudhuri. For now, however, both Google and Apple — not to mention Microsoft’s Cortana personal assistant technology — need some work, he notes. “These things are far from being a personal assistant today,” says Chaudhuri. “It’s hard to simply tell it what to do.”

When it comes to creating technologies and algorithms that anticipate your needs, Google may have the edge. Fader and Hsu both say that Apple’s privacy talk may be more of a diversion since the company has trailed Google in cloud computing as well as machine learning. Indeed, Apple has been behind Google in several areas including mapping and directions. For instance, Apple soon plans to offer transit directions as part of its maps app, a feature Google has offered for years.

“We’ve reached a period of incremental innovation, and Google and Apple are looking for the next big leap.” –Saikat Chaudhuri

“Google has been an information company from the get-go,” says Fader, who thinks Apple’s pro-privacy talk is more about marketing against its rival than a display of real concern. “When it comes to the collection of data, insights and the use of them to get solutions, Google runs rings around Apple. Google has also been more passively smart and respectful about collecting data.”

Hsu says that Apple has all the touch points to know its customers through tools like location services on its phones, iTunes, the App Store and now Apple Pay. “Apple’s stance is the high ground, but data isn’t core to its business model,” he points out. “For Google, it is. It’s hard to tell whether Apple is objecting to the data collection, chipping away at Google or just reminding people that the platforms are different.”

In fact, Apple could be boxing itself in with its privacy argument. Apple’s approach could limit the company’s ability to offer contextual services in the future if it relies solely on its devices to anticipate what a customer needs. “I’m not so confident that Apple can to adhere to this position in three years, five years or 10 years,” says Hsu, who notes that advances in cloud computing and algorithms will usher in new services. “There’s a lot of power in being able to link databases and understand behavior to make predictions.”

For now, Apple has been pushing itself as a more human alternative to Google’s algorithm-led approach. Apple’s new music service makes a point of noting that its playlists will be determined by humans, and the company is hiring human editors for its new news app.

“I think Apple can close any machine learning gaps,” says Chaudhuri. He adds that future services will also integrate mobile platforms with the Internet of Things, a series of end points such as appliances, TVs, thermostats and other objects connecting over the Internet.

On the Internet of Things front, Apple has already been laying the groundwork to be a dominant platform. Apple has launched HomeKit, software designed to connect and manage homes with its devices, as well as ResearchKit, which is used for medical research. Google has similar initiatives and has acquired Nest, which was a pioneer in smart thermostats.

Unknown Territory

Apple’s position on privacy presents an interesting natural experiment, says Hsu. It’s unclear whether or how much customers will care about what Google tracks or how its algorithms work.

“Android knows where you are and what’s around you, and there is huge value to that. What do we give up and what do we get?” asks Hsu. “Privacy is a theoretical notion today. There are things we’ve held sacred that we just give away now. We don’t know where the limits are or the cost benefit trade-off.”

Fader says what makes the Google and Apple privacy distinctions so interesting is that no one quite knows where the boundaries are until they cross one. “Some companies are going to take their data assets and push too far,” he says.

The rule of thumb Fader uses for navigating privacy and marketing is to look at effectiveness. “A company that serves up information that could be deemed creepy isn’t going to be very effective,” says Fader. What’s creepy? “Information that’s too personal and makes you ask ‘How do they know that?’ isn’t predictive of the future. If a company could tell your weight by the way you hold the phone, there isn’t a way to monetize that through something predictive.”

“When it comes to the collection of data, insights and the use of them to get solutions, Google runs rings around Apple.” –Peter Fader

Given that delineating privacy lines will require ongoing experiments, Fader says that Google is best suited to navigate this territory. “Google is adept at running experiments and trying to find out what’s useful,” says Fader. “The company is in a better position than any of the others to sort it out.”

Fader notes that the privacy issue may also turn out to be less critical than studies indicate that it is. “There is a lot of confusion about what people are willing to share,” he explains. “But when you ask people in a survey about it, they give a politically correct answer that they don’t want to share. However, people are willing to give away data even though they say the opposite.”

Room for Something New

The move to more personalized services could also provide an opening for other entrants into the market.

“I thought that when Facebook came up with its layer on top of Android, that the company could get traction simply because people are addicted to Facebook,” says Fader. “No one remembers it now. It’s the same story for Microsoft, which had a document management edge. If those two can’t figure it out, I can’t imagine who can.”

Fader adds that he doesn’t know what the incentive would be for a company to want to challenge Google and Apple, which currently dominate the smartphone market. “If a company comes up with something amazing on the hardware side and happens to have an operating system that enables it, there’s an opportunity,” says Fader.

Chaudhuri agrees. He says that most mobile innovations have been led in part by hardware. BlackBerry had the smartphone keyboard and email as the killer application before Apple came along with the touch screen.

“One thing I could see is if there was a phone that could fold up and expand to a smartphone or a tablet with new materials,” says Chaudhuri. “If someone could really nail that approach, it would be disruptive. In some ways, it’s easier to break through by leading with hardware.”

Chaudhuri adds that Microsoft could re-emerge as a contender because it has the research arm and experience with data and hardware design from its Nokia purchase. Xiaomi, which has become a large Android player in China and elsewhere, could also develop something new, says Chaudhuri.

The other opportunity would come with a phone that was entirely operated by voice technologies, says Chaudhuri. “Voice input has to improve to be strong enough to be a game changer. For another platform to emerge, the functionality of today’s devices has to materially change.”

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