Thoughts on Data Privacy and the “Penny Gap”
The ability to effectively capture, analyze and activate data has invariably enhanced our quality of life. Greater personal security. Easier to discover and connect with others. More targeted and relevant offers. Much of this has been going on behind the scenes, either because such data usage is permitted in various services’ Terms of Service (TOS) or because someone has proactively “opted-in” for their data being used to enhance their own experience. From my perspective, it seems that there has been an implicit pact between service provider (data consumer) and customer (data generator): “You can use my data to keep me safe and to enhance my web/mobile experience, but do not share my data with others.” Sometimes personal data has been aggregated and anonymized across thousands and sometimes millions of users to create customer segment information across a wide range of data dimensions (location, time, weather, preferences, etc.), but this has not seemed to strain the pact…
Until now. The US Government has seemingly made data privacy a hot-button issue, and a whole cottage industry is growing up around personal data ownership and monetization. Even with this, I still do not see widespread fears about data privacy. At the ends of the data privacy continuum you have DATA OPACITY and DATA TRANSPARENCY. With data opacity your online and mobile movements are impossible to track. You are invisible. You control your data and you don’t share it, either implicitly or explicitly. This is the promised land for bad guys. With data transparency your every online move is captured and analyzed, as are your offline moves when in possession of your mobile device or any device that carries a transmitter. While encryption protects passwords and account numbers, your patterns are captured and analyzed in real-time. Quite simply, you can’t hide. My belief is that data opacity is neither desirable nor tolerable from a public policy standpoint, and that people’s default preferences are much closer to the data transparency end of the spectrum. But now let’s consider the “personal data” industry…
Who has the greatest store of data that could be construed as the “Holy Grail of personalization?” I’d hazard to say Google. Imagine a world where Google was to chunk up your personal data and offer you a payment for its use. Any payment. $.01 per x. $1 per y. Whatever. My guess is that people would freak out and think about “their” data in a completely different manner. They will start to try and estimate the value of their data, which invariably they will overvalue. This will cause them to not make their data available for enhancing the user experience, either theirs or others, leading to degradation of the online experience. And I’d posit that the amount of money offered is irrelevant - just $.01 would do it. Here is the penny gap - the mere notion of a payment unleashes a tectonic shift in perspective and completely alters the dynamic between the parties. People who didn’t think about getting paid when the value they were receiving was implicit all of a sudden turn into (ill-equipped) economic monsters when the value is suddenly made explicit. Make an implicit value explicit and BAM! - chaos ensues.
To begin addressing such a scenario, companies like personal.com and singly.com have been formed around the thesis that personal data is an asset and should be explicitly controlled by the owner. The owner, and not the services from which usage data is created, should determine how, to whom and for how much the data should be sold. In essence, creating an explicit asset out of an implicit asset and addressing privacy concerns in one fell swoop. There is no doubt that there is lots of value in the implicit asset that is delivered to users; but the value is simply delivered without its magnitude being quantified. The really interesting question arises from the creation of an explicit data asset, and the effectiveness, efficiency, and mechanics by which price discovery takes place. Bottom line, these companies are responding to the likelihood that people will sooner or later have to face into their own penny gaps.
Should Pandora’s box be opened and personal data becomes a fungible asset, a whole new industry will emerge to provide people with the tools to effectively price their data. In this world people are publishers, and they will require decision-making tools just like today’s online publishers (see Metamarkets). They will face off against sophisticated demand-side platforms, who will aggregate demand and create the environment to fuel transactions. Individuals will eventually come to view their data asset as shares of stock, placing a wide range of order-types onto exchanges (spot, limit, partial fill, etc.) in an effort to maximize value. Or more likely, they will place their data asset in the hands of brokers who will themselves aggregate supply and seek to capture the bid/ask spread between the individual and the demand side.
I have a deeply-held believe that data wants to be open and that when open will seek to discover its fair price. This process doesn’t happen overnight as both cultural and infrastructure gaps needs to be bridged. But is a liquid market in personal data a crazy notion? Perhaps. But just maybe…
