Clubhouse’s App Rollout Signals To Consumers It Values Growth Over Them & Their Privacy

But this shortsighted approach is counterproductive to scaling

We’ve seen the story before: social media app enjoys meteoric rise unfailingly followed by a slew of privacy and security failures. Clubhouse is no different: it rolled out its app to a global user base with little regard for privacy, if any. In a nutshell: Clubhouse collected people’s personal information even before they engaged with the app. It made doubtful claims that it anonymizes the personal information uploaded to its servers. It engaged in dark patterns to get users to give access to their contacts and their Twitter information. And it was found to have some serious security failings, including failing to encrypt audio recordings and using vulnerable Chinese servers, which have been reportedly hacked.

While social media platforms are notorious for their privacy failures, Clubhouse committed its own set at a time when consumer privacy sentiment is increasingly in favor of privacy. What’s more, big tech brands like Apple have been publicly championing privacy, recognizing that privacy has value beyond compliance.

Clubhouse could’ve been the privacy-focused audio-based social media app. Instead, it chose a very different course that signals to people that it values growth over them and their privacy.

Clubhouse ignored consumer demand for privacy

Clubhouse ignores consumer sentiment that has been developing increasingly in favor of privacy throughout the years. A recent Consumer Reports study found a clear marketplace demand for privacy. Similarly, Pew Research, which has been tracking consumer privacy sentiment throughout the years, found in a study last year that more than half of Americans have abandoned an online service due to privacy concerns. Perhaps most damning are the various research findings that people weren’t willing to use contact tracing tech despite the compelling individual and public health interests involved.

In the consumer space, Signal saw growth surges throughout the pandemic and recent US election season, with users signaling that they value private messaging. Privacy-first browser, Brave, and search engine, DuckDuckGo, have reported similar usage upticks as well. Of Android users who switched to iPhones, 32% indicated doing so because of Apple’s privacy posture. It’s hard to ignore this message. Whether Clubhouse did so knowingly is yet to be determined and beside the point for now. Either way, they failed to build in response to the growing consumer demand for privacy.

Clubhouse exhibited a failure to innovate in privacy

For a Silicon Valley startup, the Clubhouse app exhibits an epic failure to innovate in privacy. Privacy is one of the hottest opportunities for innovation. The nascent privacy tech landscape is on the rise, with two startups recently reaching unicorn status, including the fastest growing startup in the US. Privacy companies have received more than $4.7B funding overall. It’s not surprising given privacy is one of the most critical issues of our time. Big Tech brands like Apple and Microsoft have embraced privacy’s competitive advantage and have built and marketed privacy features in their product releases. While tech companies are innovating to help solve some of our privacy problems, Clubhouse failed to do so in building their app. Instead, they’ve piled on to our mounting collective privacy technical debt.

Clubhouse’s disregard for privacy demonstrates fiscal irresponsibility

Clubhouse’s disregard for privacy demonstrates fiscal irresponsibility, in light of the costs associated with data protection fines and privacy’s return on investment. The EU’s General Data Protection Regulation (GDPR) includes fines of up to 4% of an organization’s global annual revenues. In the US, various privacy laws like the CCPA, COPPA, and HIPAA also involve fines. The FTC fined Facebook $5B in 2019 for privacy violations. The German and French regulators are already looking into Clubhouse’s own privacy practices. Beyond regulatory fines, litigation and data breach costs can be crippling, with companies spending an average of $3.8M per data breach, and some up to $300M (Target) and $1.4B (Equifax)

Beyond the regulatory and legal costs, privacy incidents have been shown to leave a mark on a company’s bottom line in other ways. Verizon’s Yahoo acquisition resulted in a $350M reduction in the purchase price due to Yahoo’s massive data breaches. Following Facebook’s Cambridge Analytica privacy fiasco, Facebook stock plunged 18%, wiping out nearly $80 billion in its market value, and was still 10% down a year after. Moreover, Facebook previously estimated that Apple’s newly rolled out iOS14.5 App Tracking Transparency feature could see advertising revenue drop by as much as 60%.

And while Big Tech companies like Facebook can chalk up privacy fines as a cost of doing business, can a pre-revenue startup like Clubhouse take the same approach? Are privacy fines and breach costs really a good use of its $110M in funding?

On the flipside, companies reported a 270% return on investment from their investments into their company’s privacy posture. These significant numbers demonstrate that Clubhouse’s failure to grasp privacy’s value is fiscally irresponsible. In the consumer privacy space, the Signal privacy messaging app’s recent user surge resulted to a 1100% increase in Signal Advance’s stock price — the latter is the wrong entity, but privacy’s value proposition remains.

Clubhouse displays a disregard for global data protection laws

Clubhouse’s global app rollout disregards the increasing number of global data protection laws enacted to protect people and their privacy. More than a hundred countries have data protection laws, with more coming. The EU’s GDPR is perhaps one of the most notable examples thanks to its comprehensive obligations and active enforcement. In the US, we have California’s CCPA/CPRA, with other states like Virginia and Washington following suit. At the federal level, we have existing sectoral privacy laws in place, such as COPPA, with several bills proposed for a comprehensive privacy law.

In short, Clubhouse is signaling to consumers that it values growth over them and their privacy

All of these point to the conclusion that Clubhouse values growth at the expense of people’s privacy. While the growth-at-all-costs playbook may have worked for its social media predecessors, today’s consumers aren’t as clueless as the unwitting Facebook and Instagram users from years past. It is now more costly to take privacy risks and to fail to make privacy investments. With the related market demand and regulatory pressures, privacy offers opportunities to innovate that Clubhouse missed big-time. What’s more, today’s global data protection laws pose serious privacy obligations that can’t be ignored, especially by a fledgling startup.

Clubhouse needs to take a long, hard look at its privacy posture — or lack thereof — and course correct. This means putting in the actual work of defining its privacy strategy and implementing it, taking accountability, not gaslighting the public on its privacy failures, and not engaging in privacy washing for optics. Which course will Clubhouse take?

This post is the second of a series exploring Clubhouse and privacy. The first part outlines Clubhouse’s early privacy failures. The third part provides a privacy blueprint for Clubhouse to leverage for growth, instead of growing at privacy’s expense.