Free Service? You Are not a Customer but a Product

The World Economic Forum (WEF) predicts that 50 billion devices will be connected to the Internet by 2020. This means that 44 times more data will be stored online than it was in 2009. It is good news in terms of quick access to up-to-date information, interaction and comfort. However, our privacy will be even more commercialized: our personal data will be more accessible to (un)known service providers and data brokers, more easily processed and sold to third parties for marketing or other purposes without our consent. The more blurred the boundary between being offline and online gets, the more commercialized our data will be. We are already witnessing this shift in e-commerce:

In 2014, Facebook earned $12.47 billion, up 58% year-over-year. Twitter’s profit was $1.3 billion. Although only $70 million came from selling data, as Juliette Garside reports, the company has already announced that is going to sell more user-generated content to businesses, academia or crowd control police. Patrick Pichette, CFO of Google, has calculated that Google’s total revenue for 2014 was $66 billion. It is a 19% increase year-over-year. These figures show how profitable privacy is, and what huge commercial potential is still there. The problem is that many users are unaware of how this kind of business model works, and how they can use it for their own financial benefit.

So how does it work? “When an online service is free, you’re not the customer. You’re the product,” explains Tim Cook, CEO of Apple. According to Tim Wu, Professor at Columbia University, it works on the principle ‘product / service in exchange for user personal data’. “If we were smart about the accounting, we’d be asking Facebook to pay us,” he adds. Why Facebook? It is assumed that it has collected the biggest amount of user personal data, which can be sold to advertisers.

Advertising is also at the core of Google’s business model. Mike Elgan, a tech journalist, points out a common misunderstanding of its business logic: “Who’s Google’s customer? You? Really? When’s the last time you paid Google for anything? Advertisers are Google’s customer. What do they sell to advertisers? They sell you. Or, at least, they rent you out, or provide access to you.”

In short, such a business model is data-driven: the more data you have, the more money you make. Google, Facebook and Twitter are only a few successful cases of infomediation: they are mediators in information exchange between service users and advertisers, to refer to data advisor Thomas Redman.

There are some attempts to challenge this business model. Data journalist Billy Ehrenberg suggests bypassing mediators and making your own profit. He refers to 2 such cases. Case 1: Frederico Zannier sold his data on Kickstarter, a crowdfunding platform, for $2 a day, and earned $2,733 in total. Case 2: Shawn Buckles sold his data to The Next Web for €350 ($385.61) at an online auction. Although Buckles’ sum is not as large as Zannier’s, in an interview with Wired, he admitted that he appreciated more the fact that he had made his own decision on who would have access to his data, and for what purposes they would be used.

Mark Sullivan, a contributor to PCWorld, presents another option: using services of data-vault startups. They store, protect and loan data only to those companies that their customers approve of. In return they get some rebates or discounts. It is a win-win business: users take control of their own data: they decide how they will be handled online. Because of their direct involvement in data collection, advertisers and marketers have access to more accurate data.   

References:  [1] Billy Ehrenberg, The Guardian / [2] Facebook / [3] Juliette Garside, The Guardian / [4] Patrick Pichette, Google / [5] Tim Cook, Apple / [6] Tim Wu, The New Yorker / [7] Mike Elgan, Datamation / [8] Thomas Redman, Harvard Business Review / [9] Billy Ehrenberg, The Guardian / [10] Nicholas Tufnell, Wired / [11] Mark Sullivan, PCWorld