As part of our look at Big Data this month we report on what International management consulting firm Arthur D. Little says about the vast amounts of data being created each and every day and collected by companies around the globe. In many cases users are being asked to sign up for more invasive user agreements allowing companies to gather ever more private data and they often don’t know how their data will be shared.
In 2011, humans created 1.8 zettabytes of data, the equivalent of an HD movie 43 million years long. This data, together with other historical information such as weather conditions, key events, and the political/ economic situation is combined to generate a detailed prediction of user behaviour. Is it time to tame this wild data harvest? What does the future hold for information intermediaries and the buyers of this user information?
During World War II, the Kerrison Predictor played a decisive role in improving the effectiveness of anti-aircraft guns. The Predictor was able to dramatically increase the success rate of the guns by predicting and shooting at the most probable location of a flying object by using the observed information about the object.
A similar revolution is already underway for marketers around the world. Over the last decade, it has become possible for information intermediaries to collect and archive enormous volumes of behavioural information. These mammoth databases are already being used to predict and guide user behaviour with increased veracity (near zero fail rates in predicting behaviour) and velocity (real time) using observed information about a user (such as online activities, profile and location).
Platform providers and intermediaries in the internet ecosystem are able to generate revenue streams by selling user insights to information buyers. The monetisation potential from these insights is driven by the size and pervasiveness of the platform and the range of the user information the intermediary has access to. As a consequence users are asked to sign up for more invasive user agreements that allow the intermediary to gather and archive information well beyond what would be considered as essential or necessary to deliver the service.
The services delivered by intermediaries usually provide positive benefits to users. However, the other side of the transaction – the nature and consequences of the information gathered by the intermediary through the service provision process – has just started receiving attention. The information supply – the user sharing information with the intermediary – is the key source of value in the information market. Here the value chain typically involves Gathering, Processing and Monetisation of user information.
Currently the information supply is largely unregulated as to what the user has to share and how the intermediary can potentially use it. Most examples point to the unfettered power enjoyed by the intermediary over the user information in the form of pervasive accumulation, unlimited archival and unrestricted access.
It may be argued that the value received by the user from such subsidised or free services equitably compensates for the information provided, which essentially is a factor of production for the intermediary. However, given that most intermediaries enjoy complete power over user information, including any and all possible future uses, it would be practically impossible for a typical user to ascertain the fairness of the exchange. Users currently have limited or no option to make informed choices about consuming these services while at the same time controlling the information they share, or the final portrait of behaviours that is being built over time. These concerns are reflected in multiple instances of consumer lawsuits and activist-driven campaigns on privacy and intellectual property violations (as evidenced by backlashes against LinkedIn, Sony, Google and Facebook).
This potential market failure is not likely to be significantly corrected through self-regulation, judging by the actions of intermediaries in obtaining sweeping permissions through increasingly complex user agreements in order to preserve the core value derived from current practices. On the other hand, the substantial information and power imbalance between intermediaries and users constrain activists looking to build momentum for meaningful change. The need to address this failure cannot be ignored in the pervasive, global information economy and merits consideration from policy makers.
Information intermediaries have made great advances in harvesting and monetising user information given the explosion of information services adoption globally. While do no evil policies have worked well for the intermediaries in the absence of regulation, they do not provide the detail that users are increasingly expecting, leading to a consumer backlash and activism. Intermediaries need to think clearly through the various dimensions of the User Information Value Chain while planning both the evolution of their business models and their offerings. Intermediaries that are proactive in anticipating the emerging regulatory landscape will be more likely to succeed in a potential market shakeout caused by regulation.
Chief Officers considering investments in user information are better off factoring in these uncertainties from the current and emerging regulatory landscape when assessing these investments. The additional returns from ‘knowing the customer deeply’ must be weighed against the price of ‘knowing too much’. Even in the absence of strong regulatory changes, an increasing consumer backlash and activism can have a significant impact on overall returns to buyers of user information. The marginal value of leveraging additional user information for improved segmentation and targeting must be weighed against the increased risks posed by the same.
Given the wide reach and potential consequences of the productisation of user information, it becomes essential for policy makers to carefully balance the positive welfare effects of innovation against negative spillovers. A key success factor in this endeavour would be to consider a broader scope of rule-making, coordination and enforcement that goes beyond existing structures defined by national and regional boundaries.