Rethinking Data Intermediaries

Adam Smith's economic concept of the Invisible Hand proffers the idea that great social benefits and public good come from everyone acting in their own self-interest. However, Adam Smith did not anticipate the internet and its power imbalances or how collective action may address them. When markets misallocate resources or produce an unintended outcome, Smith labeled this as a market failure. Today's market for personal data is a clear example of a market failure due to collective action and power imbalances. 

The idea that consumers should be paid by businesses for the right to collect and use their data, a data dividend, is not novel. The reason consumers are not paid is because consumers seem happy to give it away for free?  The issue is collective action. It is unrealistic to think that consumers could band together, implement sweeping measures to prevent businesses from collecting their data until their demands for compensation are met. It is also unrealistic to think that businesses would pay consumers for their data when the consumer will give up a good deal of information in return for a rewards program that offers them $10 off for every $1000 they spend. 

While the Invisible Hand may have failed, that does not mean the economic fundamentals are absent. Economics is all about incentives. The higher the incentive, the greater the number of people who will be enticed. If data intermediaries are structured to align with the incentives of consumers, a payment scheme may be feasible; without regulation. 

It is important to pause and understand the opposition to this concept. Obviously the businesses that currently obtain the data for free would not be friendly to the idea, but I do not think that garners much sympathy. The real challenge comes from those with the same underlying mission of providing consumers with control of their data. These challengers argue that not only is data collection a perverse practice, but no business should put a price on one's privacy. Not only does this argument come from a place of economic privilege, it is a logical fallacy for a few reasons: (1) it assumes absolute privacy is achievable; (2) it assumes everyone wants absolute privacy; and (3) it argues that people should not have the option to sell their data when the main contention is that people should have control of their data. Although you may not agree with someone's choices does not mean they should not be able to make them. 

Now let us talk business. 

Let's assume consumers would rather receive monetary compensation for their personal data than to forgo compensation. We start a data intermediary company, call it Data Dollars, with the mission of paying people for the exclusive right to collect their data. Data Dollars offer a reverse subscription model where the more information consumers allow to be collected, the more money they get paid per month. For example, the more basic version only collects browser data and the deluxe version, among other things, collects geo-location data and allows the review of credit card statements. Inherently this business model provides consumers with transparency of data processing activities. 

While this may sound invasive, consumers are already providing businesses this data free of charge, knowingly or unknowingly (but maybe the full disclosure is what scares people off). However, based on the assumption above, consumers cannot sign up fast enough and Data Dollars hits a critical mass of people. Also, given the changing landscape of privacy laws, Data Dollars is able to collect more data than other companies because of the contract with, and explicit consent from, the consumer. 

Data Dollars now has a wealth of information on consumers giving it arguably one of the most valuable datasets. The datasets can be licensed or sold to businesses that want to use that information for marketing, advertising, trend spotting, investing, or otherwise. Data Dollars has every incentive to protect the information in the datasets because, if the datasets are made public, the entire business model would go down the drain; not to mention the detrimental reputational harm. Consumers also want their information protected and, for the first time, the business and the consumer interests are aligned. 

Moreover, not only can Data Dollars monetarily compensate its customers, but it can negotiate terms of use. For example, have you bought a product or service that did not function as you expected? Then you look to the terms and conditions only to find that the business has disclaimed everything, essentially saying if it doesn’t work nothing here said it would. On behalf of its clients, Data Dollars negotiates different terms because that business needs robust datasets to help drive its analytics. The business is likely to offer more favorable terms giving Data Dollars leverage to fight for enhanced consumer rights.  

At the heart of the Invisible Hand concept is the idea that when business interests align with the interests of the consumer, everyone wins. Aligning the interests of data intermediaries and consumers could lead to monetary compensation and more consumer protections. Furthermore, consumers have transparency into the data processing activities and provide informed, affirmative consent. A market structure and business model exists to help reign in the current power imbalances and solve for collective action.