6 days ago
Hidden Cost Of 'Free' Apps: How Your Data And Decisions Are Monetized
BATH, UNITED KINGDOM - AUGUST 01: In this photo illustration the logo of US online social media and ... More social networking site 'X' (formerly known as Twitter) is displayed centrally on a smartphone screen alongside that of Threads (L) and Instagram (R) on August 01, 2023 in Bath, England. On the top row the logo of online video sharing and social media platform YouTube is seen alongside that of Whatsapp and TikTok. Along the bottom row Facebook, Quora amd Messenger are displayed. Elon Musk recently revealed the new logo for Twitter, which constitutes the letter 'X' as part of a rebrand of the company. (Photo by)
Let's be honest: 'Free' apps such as Robinhood and TikTok are everywhere, shouting out that you can get wealthy or be entertained without spending a nickel. These slick devices and mood-altering effects have fixed tens of millions of people in their shadow. But here's the truth about free stuff: nothing is free. They also profit from your data, push you towards riskier bets and costing people thousands of dollars in losses and nothing to show for it.
Whether you chalk it up to gamified trading and influencer hype, or the endless email promotions, the price of these platforms is finally sinking into the consumer psyche. Robinhood had burst on the scene in 2013, with a sales pitch about commission-free trading and a mission to 'democratize' wealth. The infinite scroll of short, addictive videos on TikTok made it a global phenomenon. Both apps are free to download and use and do not require a subscription. But if you are not paying, then you are the product.
Robinhood made $331 million in 2021 from 'payment for order flow,' a way that market makers pay to process your trades, in order to nudge you to trade more, whether or not it's a bad call. ByteDance, the Chinese company that owns TikTok, has been accused of sharing user data with advertisers that could be used to employ supremely targeted ads. A 2023 report by the Center for Digital Democracy put TikTok's data driven ad revenue above $15 billion a year.
These apps don't just accumulate information; they drown you in it. Robinhood's app is designed to feel like a game, complete with bursts of confetti when you make a trade and push notifications that encourage you to keep up with the Joneses. It's no wonder many of its users were participating in dangerous options trading as of 2022, according to FINRA, and the vast majority having zero investing experience or knowledge.
TikTok's algorithm also ensures you keep scrolling by serving up more of what hooks you, be that videos that tout 'meme stocks' such as GameStop or AMC. Social influencers are pushing these stocks which results in a buying frenzy. That was also true in 2021, when investor hype on Reddit and TikTok sent the share price of GameStop soaring before the price tumbled and retail investors got 'left holding the bag.'
The problem: real people are the ones paying the price. According to a 2021 CNBC article, Dogecoin's 26,000% surge in six months was driven partly by teens and young adults on TikTok and Reddit, many of whom used apps like Robinhood to trade. The article highlighted that inexperienced investors, often in their late teens to early twenties, were drawn to the 'get rich quick' scheme, with some losing significant sums when the market corrected.
It's important for investors to understand that the algorithms on these platforms privilege what benefits them, not what's best for you. The S.E.C. fined Robinhood $70 million in 2023 for confusingly documenting risks to users. TikTok's been sued over privacy problems, but both just keep getting bigger.
Key Takeaway: "Free" apps come with a catch. They profit from your data, attention, and sometimes your finances. Be cautious and always conduct thorough, independent research before investing, and don't let app nudges or influencer hype drive your decisions.
