.

 

Consumers Lose Financially as the Value of their Personal Information Flows to Big Data Platforms

Beyond losses from price discrimination and from direct scams using targeted data, consumers lose out online as the value of their personal data is coopted for the profits of the big data platforms.  In a broad sense, users lose out doubly since the data platforms not only sell their data to advertisers but also use the free labor and data provided by all users collectively to attract users to their sites in the first place.  While users may vaguely feel that they are giving up some control of their data in exchange for services provided by big data platforms like Google and Facebook, those companies depend on the free labor of individuals posting their updates to Facebook, reviews on Amazon, edited stories on Wikipedia, and their links on blogs to make those services valuable.

In fact, Google’s original innovation in search technology was built around harvesting the diffuse labor of people across the Internet.  Its original Page Rank algorithm used the links to other websites created by web site creators as a tool to assess and rank the likely value of websites containing similar information or keywords, an algorithm which has only been strengthened by tracking the sites for which people search.[i] Each click adds to the algorithm that can direct users with similar searches and interests to see the same link highly ranked as well.  The more people find and use other people’s content via Google, the better Google’s algorithm becomes, reinforcing the precision and strength of its search engine vis a vis any challenger search technology which would lack access to the network of users and the information they generate on search preferences.[ii]   Similarly, social networks like Facebook and LinkedIn depend on the daily infusion of writing and links by their users to provide value to other users and use experiments on the behavior of those users to strengthen their algorithms.[iii]

These big data platforms have positioned themselves to take advantage of what media studies professor Clay Shirky has labeled a profound shift in models of product where “user generated content”, what was once called “free” time, becomes incredibly valuable when aggregated.[iv] That so much seems free on the Internet is just the flip side of people providing so much free labor without being paid themselves and then accessing it on big data platforms.  Nicholas Carr has referred to this as “digital sharecropping” where the Internet “provides an incredibly efficient mechanism to harvest the economic value of the free labor provided by the very many and concentrate it into the hands of the very few.”[v]  Recognizing the economic gain from user production of information, companies like Facebook go out of their way to encourage the maximum sharing of data possible, using what media activist Cory Doctorow calls “very powerful game-like mechanisms to reward disclosure” with plenty of rewards in the form of “likes and attention from friends and family when they post.[vi]

The incredibly outsized stock valuations of web-based firms such as Amazon (with its user-generated product reviews), Facebook (with its user-generated content and social links) and Google (search for others’ content, user-generated YouTube videos etc.) can best be understood in terms of the free labor and data each is harvesting.  For example, when Facebook went public with its initial public offering (IPO), one analyst estimated that users at Facebook had generated 2.1 trillion piece of “monetizable content” between 2009 and 2011, which translated into about $100 billion of the value of its stock market capitalization-- with each Facebook user contributing around $100 of user labor on average to the stock wealth created for Mark Zuckerberg and his fellow shareholders.[vii]

Analysts like Michael Fertik, CEO of the company Reputation.com, which helps keep their information anonymous online, estimates that data can be worth in the thousands of dollars each year to all the data platforms a consumer may use.[viii]  One other measure of the value of user data is the fight Apple had with publishers over terms for sales of subscriptions iTunes. Most publishers were willing to pay 30% of their subscription price to Apple but balked at Apple retaining control of data on subscribers, indicating that publishers valued the user data at more than 30% of the cost of any purchase online.[ix]

Yet while publishers negotiate hard over control of that personal data with Apple, the consumers themselves generally give their personal data away for free without a thought.  Consumers underestimate the value of their data and lose out continually in these online transactions. De facto they are in a barter relationship with big data platforms, trading data for access to those “free” services—and the economic history of barter is that less sophisticated partners in such exchanges inevitably lose financially.[x]

Multiple studies show most consumers don’t even understand that their private information used by big data platforms is also being shared with third parties to assist in marketing advertisements.[xi] Users rarely read the fine print when they click acceptance of the terms of service on these sites and receive little information about the consequences of sharing their data.  Yet this sharing of data with third parties doesn’t reflect consumer preferences: a 2012 Pew survey found 73 percent of the American public were opposed to search engines tracking their search history even to improve search results and 68 percent opposed using user data to help advertisers target ads.[xii]  Users who understand that such sharing is happening express frustration that they lack the capacity to stop it[xiii], even though the desire to stop such tracking, aggregating and sharing of data has been increasing.[xiv]

Notably, the former Federal Trade Commissioner J. Thomas Rosch expressed concern in his 2013 opinion about Google that the company engages in “telling ‘half-truths’—for example, that its gathering of information about the characteristics of a consumer is done solely for the consumer’s benefit, instead of also to maintain a monopoly or near-monopoly position.”[xv]

Most data platforms declare that a single click signing up for a service creates “consent” by any user for whatever purpose the companies chooses to use their data.  The problem is that if few users know how the data is actually being used, such consent is meaningless.  And since the companies themselves don’t even know the economic value of user data at the time it is shared, often waiting months or years to figure out how to monetize it, it’s extremely unclear how users can be in a position to effectively negotiate a fair economic value for their data when they aren’t and can’t be told about its potential future use.

 

[i] Siva Vaidhyanathan, The Googlization of Everything, p. 21.

[ii] James Grimmelmann, The Google Dilemma,” 53 N.Y.L. Sch. L. Rev. 939 (2008 / 2009); Pasquale Beyond Innovation and Competition, p. 116.

[iii] Martin Bryant, “Facebook’s emotion experiment wasn’t just another A/B test, and we need to be ‘algorithm-savvy’”, TNW Blog, June 29, 2014; http://tnw.co/1rMcIix

[iv] Clay Shirky, Cognitive Surplus (2010).

[v] Nicholas Carr, “Sharecropping the long tail,” Rough Type, December 19, 2006; http://www.roughtype.com/archives/2006/12/sharecropping_t.php; see also Vaidhyanathan, p. 30 (“Google is taking a free ride on the creative content of billions of content creators.”); see also Lanier, Who Will Own the Future? (“An amazing number of people offer an amazing amount of value over networks. But the lion’s share of wealth now flows to those who aggregate and route those offerings, rather than those who provide the “raw materials.”)

[vi] Cory Doctorow, Talk at TEDx Observer, 2011, http://tedxtalks.ted.com/video/TEDxObserver-Cory-Doctorow

[vii] Cukier and Mayer-Schonberger.

[viii] Quentin Fottrell, “Who Would Pay $5,000 to Use Google? (You)”, SmartMoney.com, Jan 25, 2012; http://blogs.smartmoney.com/advice/2012/01/25/who-would-pay-5000-to-use-google-you/  (“’Their entire market cap is related to how much data is being collected and used,’ says Jules Polonetsky, director of the Future of Privacy Forum, a Washington, D.C.-based think-tank.”).

[ix] Lauren Indvik, “Financial Times Refuses To Give Up Subscriber Data to Apple,” Mashable, Apr. 4, 2011; http://mashable.com/2011/04/04/financial-times-subscriptions-apple/

[x] Karl Polanyi has been one of the foremost documenters of the historical disruptions where market and non-market systems have collided.  See The Great Transformation (1944) and Trade and Market in the Early Empires (1957).

[xi] Jan Whittington & Chris Jay Hoofnagle, “Unpacking Privacy’s Price,” 90 N.C.L.Rev. 1327 (2012) (“American consumers profoundly misunderstand the rules underlying these transactions; they do not understand the terms of trade.”); Ponnurangam Kumaraguru & Lorrie Faith, Privacy Indexes: A Survey Of Westin’s Studies, Cranor, Inst. For Software Research Int’l, Carnegie Mellon Univ. 13 (2005), available at http://reports-archive.adm.cs.cmu.edu/anon/isri2005/CMU-ISRI-05-138.pdf. (about half of Americans believe that “[m]ost businesses handle the personal information they collect about consumers in a proper and confidential way.”); Chris Jay Hoofnagle & Jennifer King, Research Report: What Californians Understand About Privacy Offline 9–19 (May 15, 2008) (working paper), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1133075 , Alessandro Acquisti & Jens Grossklags, “What Can Behavioral Economics Teach Us About Privacy?, in Digital Privacy: Theory, Technologies And Practices 363 (Alessandro Acquisti et al. eds., 2008) (bounded rationality, optimism bias, and information asymmetry lead consumers to undervaluing personal information).

[xii] Search Engine Use 2012, Pew Internet and American Life Report, Mar. 9, 2012, http://bit.ly/yXCsFk.  Just 38% of internet users say they are generally aware of ways they themselves can limit how much information about them is collected by a website.

[xiii] Id.  Just 38% of internet users say they are generally aware of ways they themselves can limit how much information about them is collected by a website.

[xiv] Avi Goldfarb and Catherine Tucker, Shifts in Privacy Concerns, Working Paper, January 28, 2012, http://ssrn.com/abstract=1976321 (millions of online decisions analyzed showing rising desire for privacy online)

[xv] Concurring and Dissenting Statement of Commissioner J. Thomas Rosch Regarding Google’s Search Practices, In the Matter of Google Inc., FTC File No. 111-0163, fn 1, January 3, 2013, http://1.usa.gov/TNx7nc.