Private 'I'

What's the value of privacy in the digital age?

I recently spent a few hours on the Internet learning about myself. First, I purchased my profile from a company called Intelius (slogan: “Live in the know”), which provided my age and date of birth, my former employer, the names and ages of my immediate family members, and my past six previous addresses.

Then I bought a subscription to Spokeo, which revealed my phone number, ethnicity, occupation and level of education. Spokeo was a little less accurate than Intelius, identifying me as a high school graduate rather than the holder of an M.A. degree, but most of the information was correct. Finally, I ordered a criminal background check from InstantCheckMate and was relieved to discover that I had never been arrested, had no outstanding lawsuits against me, and wasn’t a sex offender. Whew!

Companies such as Intelius and Spokeo gather that information wherever they can find it—court cases, marriage and divorce records, property deeds and sex offender registries. However, data collectors don’t have to dig as hard as they used to. Thanks to social media sites—Facebook, Twitter, LinkedIn—people increasingly are voluntarily serving up details about the most intimate aspects of their lives: their kids’ names, their pets’ names, where they live, what they like to eat, their favorite sports teams, how they feel about anything from Jimmy Fallon taking over the Tonight Show to drone warfare, and everything in-between. A veritable feast of personal information, and yes, a marketer’s dream.

Online data collection is big business … and getting exponentially bigger. Analyst firm Wikibon predicts the total market for data sets collected through website, social media and other means of digital communication to approach $50 billion by 2017. Whether it’s an advertiser trying to learn your buying habits, an employer deciding whether to hire you, or somebody you just met wondering whether to date you, there’s a thriving online market in personal information.

Mendoza College students are already being educated in the ways of collecting, analyzing and mining what has come to be called Big Data. In one assignment for the Business Forecasting and Data Mining course (taught by Finance Professor Barry Keating at both the undergraduate and MBA level), students are tasked with discovering which customers of a bank are prime prospects to take out a loan. Students are given about 25 categories of information on individual customers, including types of accounts the customers have, the size of their families and the ZIP codes where they live.

Using sophisticated data-mining software, students are able to identify characteristics that people who have borrowed in the past have in common. From this, they build a computerized model that—if they did it right—is 7½ times better at predicting who will become loan customers than by just guessing, which is essentially the method of broad-based advertising. That’s going to save a lot in marketing costs.

Set against this trend, the traditional concept of privacy is fast becoming extinct. In many ways, this might be considered a “win” for business, but what’s the tradeoff for consumers and society?
 

THE VALUE EXCHANGE

Howard Tullman presents a view of the online world where “privacy” seems like a quaint notion. Tullman, the founder and CEO of Tribeca Flashpoint Academy in Chicago, is not only a serial entrepreneur, but something of a guru when it comes to social media. He’s worked with clients ranging from Tyra Banks to documentarian Ken Burns. His presentations, such as the one he recently delivered to the Notre Dame MBA class “Commercialization Analytics,” are revelatory—slide after slide of statistics, charts and statements that provide vivid documentation of not only how pervasive a presence social media is in our lives, but how unaware we are of its power.

Stats like these: 

Facebook now has 1 billion users—or 1 out of 6 people in the entire world population—and it can predict with greater than 80 percent accuracy which two people will change their status to dating each other. 

Google users conduct 3 billion searches every day, and the search giant collects 57 different kinds of criteria on the person searching every time.

“You have no idea about how much we know about you, and it’s only getting more so,” says Tullman. “Personal data is the oil of the digital age. It’s really what is going to drive everything.”

That statement might sound like an Orwellian plotline, until you start to grasp the larger picture of how Tullman sees the evolution in social media. Where the Web once primarily was about providing information, it’s now a social venue where we go to share personal information about ourselves and engage with others. Against this backdrop of information sharing, consumers increasingly are willing to volunteer personal information in return for a reward of some kind. Tullman calls this the “social value exchange.”

“The estimates are that by 2020 more than 90 percent of the U.S. population will give up some portion of private information because of an incentive,” he says.

As a result of this tradeoff, ads, search results and product suggestions are “hyper-personalized,” says Tullman, which means they are targeted very specifically to your demographic, geographic and psychographic data. Anyone who has used a search engine to hunt for a product or service online has noticed how relevant the advertisements are that appear alongside the results. That’s because advertisers pay Google and other search engines to place ads next to certain search terms like “laptop” or “college.” Users of Google’s email service, Gmail, are shown advertisements based on the messages they send and receive. Netflix and Amazon.com suggest products based on their past consumption patterns.

The advantage for marketers is obvious; Facebook—which recently partnered with Datalogix, a firm that records purchasing patterns of more than 100 million American households—found that 70 percent of advertisers with ads on Facebook got back three times as many dollars in purchases than they spend on ads, according to Slate.com.

But is this level of digital scrutiny and precision marketing good for consumers? Ultimately, yes, say many experts. “Smart” ads provide more useful information than the traditional carpet-bomb approach, which delivers up ads to consumers almost indiscriminately. The TV spots for feminine products, or those touting “best herbicides” in a market that’s largely urban, fall into this category. Many social media marketers argue that not delivering targeted ads to consumers is a disservice. But even if hyper-personalization doesn’t win you over, that scenario doesn’t describe where the real benefits lie. There are revolutionary changes yet to come.
 

Devaraj says businesses should be required by law to notify consumers about how their information will be collected and what it will be used for, and that consumers should have the option to “opt out.”

Hard-liners who want to safeguard their privacy online can always try to thwart the tracking devices. Some websites allow users to keep their data private, but they typically don’t advertise the option, and many users remain unaware that they even have a choice. Internet browsers like Firefox and Internet Explorer allow users to reject the behavior-tracking cookies. But users who refuse to accept cookies lose access to many of the Internet’s most popular sites like Google and Facebook.

Such defensive measures strike the typical younger consumer as extreme, says Carol Phillips, director of the market research firm Brand Amplitude and an adjunct instructor of marketing for Mendoza College. Phillips studies Millennials, the generation that came of age around the year 2000. She says that members of this cohort are not just comfortable with businesses—Facebook and even retailers—knowing their likes and dislikes, they’ve come to expect it.

“The thing about Millennials, especially Millennial women, is that they are always shopping,” she says. “They’ll take a break and switch over to see what’s new at shopping websites. It’s almost a hobby. And they expect it to be somewhat tailored to them.”

As a result of such generational differences, if you ask what the value of privacy has become in the age of Big Data, one valid answer would be, “It depends on your age.”

Here’s another.

In his presentation to the Commercialization Analytics class, Tullman mentioned that Amazon.com’s latest tablet computer, the Kindle Fire HD, comes in two versions. One displays ads personalized to the user when the device is on but the screen is locked. The other doesn’t run ads on the so-called lock screen. The ad-free version costs $15 more.

Said Tullman: “We are starting to understand much more clearly that privacy is just another thing that’s for sale.”