Apologies to Milton Friedman but we’re all WhatsAppers now
4 min read 24 Jan 2021, 09:34 PM ISTPrivacy is not a concern strong enough to overpower WhatsApp’s advantage of its network effect
Individuals love cash. Institutions hate it. Any government would want cash to be traceable and an ability to track who spent how much money where.
Central banks don’t like cash either. It comes in the way of a new-age monetary policy of negative interest rates. If people decide to keep their wealth in a bank, it will lose value. Hence, the entire idea behind negative interest rates is to get people to spend money and help the economy grow.
But people do have the option of withdrawing money from banks and keeping cash in their vaults, so that it doesn’t lose value. Given this, central banks would love all money to be digital and in their control.
On the other hand, most rational individuals would prefer that cash continue to exist. As Jacob Goldstein writes in Money: The True Story of a Made-Up Thing, about cash: “It lets me walk up to a stranger, hand over a few pieces of paper, and walk away with an armload of stuff… Nobody else has to know anything about our exchange."
Clearly, the incentives at play are different. Individuals are looking for privacy, whereas institutions want to know everything.
While concerns about the privacy of money might seem like a problem of the last few years, they aren’t. In the early 1980s, the American computer scientist David Chaum realized that the rise of powerful networked computers would lead to the rise of digital money controlled by commercial banks and the government, where there would be no privacy of money.
In order to ensure that privacy of money continued, Chaum came up with a clever system called digital cash. The idea was that retail stores would have card readers that would transfer money from the account of the individual who wanted to spend money, to theirs.
As Goldstein writes: “Chaum figured out a system where the bank could verify the digital money without knowing the identity of the person using the money." Chaum’s digital cash never really took off. When online buying started in the mid 1990s, people used their credit cards to buy stuff and not digital cash. There was hardly anything private about spending money using credit cards. Of course, individuals are more concerned about privacy now than they were back in the 1990s. The recent hullabaloo around WhatsApp’s attempts to update its privacy policy is a case in point.
What’s changed between then and now? Social media. In the 1980s and 1990s, people who had knowledge about such technical issues had no way of spreading that knowledge quickly, unless they decided to spend their own money and publish advertisements in newspapers or magazines. The other possibility was for the media to highlight the issue, which would happen only if an editor thought that the issue was important enough to be covered.
These days, anyone who has the required technical knowledge can put it out, and if enough people find it interesting and important, it can go viral. This is precisely what happened when it came to WhatsApp’s attempts to update its privacy policy that wouldn’t have allowed users to opt out of the company sharing data with its owner, Facebook.
A few people highlighted this on social media and what they said went viral. Soon, people were rushing to download other instant messaging apps like Signal and Telegram. Now, news reports suggest that even the government has asked WhatsApp to withdraw the policy tweaks it wanted to make.
The interesting thing is that the average individual doesn’t have much of an idea about the policy tweaks, or how they are likely impact him or her. But social media has got people worried, leading to the installation of other similar apps. Interestingly, privacy concerns are currently limited to WhatsApp, and no one has seriously raised the question of why so many other apps are free. What’s in it for them? The answer is user data, which they plan to monetize at some point of time.
The interesting thing is that while new chat apps have been installed on phones, WhatsApp continues to stay installed, with a good chunk of communication still happening over it. Why is that the case? The network effect is at work: the greater the number of people connected to any particular network, the more valuable it is to people who are already a part of it.
In simple English, it isn’t easy to leave a network that everyone else is using. When do you leave? Do you leave first or do you wait for others to leave? Largely, people wait for others to leave, and so very few people leave in this process, making a network sticky.
This explains the success of Facebook despite Google+ having been the better product. It also explains why Mastodon’s challenge to Twitter failed even before it took off.
This is why I think while WhatsApp might face a tough time, it will survive and continue to be the world’s number one instant messaging app.
To conclude, in the 31 December 1965 issue of Time magazine, economist Milton Friedman had been misquoted as saying, “We are all Keynesians now." In the same sense, and with due apologies to the economist, we’re all WhatsAppers now.
Vivek Kaul is the author of ‘Bad Money.’