The market inefficiency sustaining Big Tech

The user data arbitrage and the right regulatory remedy

Awesome piece Jason. Curious about three things…

  1. What’s your problem with Facebook having your personal data? There are a lot of reasons people wouldn’t want that, I’m just curious about your own, personal concerns. Sounds like you have an issue with either all of your personal data getting concentrated on one platform or having information about you preserved online rather than being undetectable offline. Regardless, is your ultimate concern:
    a) getting hacked/identity theft; and/or
    b) authoritarian monitoring?
  2. Am I correct to infer that you’re happy to pay more for a service that doesn’t require a Facebook-esque authentication? Not only do your data (like GPS) help increase the efficiency/consumer surplus of apps, but the resale of your data lowers the cost too. (In asserting the latter, I’m assuming that neither City CarShare nor Getaround have massive profit margins.)
  3. What about Facebook, et al makes their monetization of your personal data worse than offline businesses? Your experience with Getaround customer service sounds brutal, but their reselling of your personal data sounds similar to the age-old practices of traditional mortgagors, credit cards, subscription services, etc. Most people say their concern is the pervasiveness of their online user profiles, but all of your offline data are commingled into even more detailed dossiers. Furthermore, Facebook and Google do not straight-up sell your data — rather, they’re agents who use your data for themselves to better serve advertisers and developers (i.e. your data theoretically shouldn’t leave their hands in exchange for hard dollars).

I’m in no way trying to debate or provoke you, I’m just trying to understand more about your concerns and your individual opportunity costs, because there are appreciable net benefits of the digital economy, which can be preserved if given the right set of prescriptions for privacy risks…

Personally, I’m happy to sing the praises of the digital economy — and reap the benefits — but I know it’s easy to whistle-past-the-graveyard if you haven’t suffered the consequences of a hack, identity theft, or loss of personal liberty.

Whether social or software, the space is getting more competitive and more crowded, but the first movers — today’s giants of the digital economy — still enjoy the massive gross margins that have [imprecisely] become synonymous with “Tech.”

Massive gross profit margins are incontrovertibly a sign of market inefficiency. I hope exogenous interventions (like antitrust breakups) are not the fate of these business, but something will compress those wide margins. These tech giants happen to be the ones who have successfully aggregated all of our user data, and accordingly, the following prescriptions are a more reasonable tact. The absence* of these requirements have perpetuated the market inefficiency responsible for Big Tech’s unassailable profitability…

  1. Encryption and anonymization should be compulsory by law (ex ante): This isn’t as much of a tangible expense as it is an opportunity cost for Big Tech, whose revenue streams from data sales to/sharing with 3rd parties will suffer as a consequence of this requirement. It’s fine for each company to build personal user profiles for in-house use, because that enables them to better serve consumers with applications like digital assistants, for example. But, any data that’s shared with a 3rd party should be scrubbed. If you’re still concerned with in-house data getting hacked, that leads me to my second point…
  2. Corporate liability for hacks and identity theft (ex post): Going back to my original questions for you, hacks and identity theft really are the biggest risks to concentrating user data. This is the arbitrage that lets Big Tech acquire our data for free and monetize it for a king’s ransom. Preventative cybersecurity should have always been a more material expense to eliminate that arb — including more R&D, Capex, insurance, and consumer protection. Yes, cybersecurity insurance is expensive, but it should be, because it’s hedging 22% profit margins on $90B in revenue (using one Big Tech constituent as an example).

If implemented, these two solutions will preserve the consumer surplus so brilliantly provided by Big Tech: Apps will still be free; the web will still be open; etc. However, these prescriptions will also hedge the event risks that are the nasty underbelly of Web 2.0’s digital economy.

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*Some commentators will say that both of these requirements are already enforced. Most preexisting standards are weak-form that need to be amplified. We can debate this at length at another time.

“Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away...” 👉 http://annotote.launchrock.com

“Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away...” 👉 http://annotote.launchrock.com