Tradeoffs between personal data privacy and customer analytics.

  • Matt Lindsay
  • 08.01.2016

This guest article is the first in a three-part series from Mather Economics, an Atlanta-based global consulting firm that helps businesses with pricing strategies.

As the news media business goes digital, a fundamental question has arisen from the ubiquitous capturing of data enabled by digital distribution platforms: where and when do the costs of data capture outweigh the benefits? There are costs from capturing the data in the form of large websites and slower page load times, which have been found to alter customer behavior in ways that lower the revenue of the publisher. There are additional costs from capturing data in the loss of privacy a customer experiences from being tracked. What are the benefits and costs of this lost privacy?

MattLindsay_seriesTo answer this question, it is interesting to compare the news media industries in the United States and Europe. Consumers in the United States, and companies that operate in this country, have far less concern about lost personal privacy than their peers in Europe. Americans seem to accept that data capture occurs and that companies use information on their demographics and behaviors for a variety of purposes. There are Americans that actively try to thwart data collection attempts, but they represent a very small share of the market. Americans appear to trust companies with their data to a far greater degree than they do government.

Europeans are much more concerned about personal privacy and data capture by corporations than Americans. As has been widely reported, the EU has forced Google and other companies to honor an individual’s “right to be forgotten.” Europeans appear to trust their governments with their data, but take a wary eye toward private sector data capture. In response, sensitivity about using information they collect on their customers is one of the most significant differences between European news media companies and their American counterparts. Does the reluctance to use customer data to optimize their business hinder European companies? The answer, at least in one respect, seems to be yes.

According to the 2015 Word Press Trends report, from 2011 to 2015 news media companies in Europe lost 21.3 percent of their print circulation, while in the United States, over the same five year period, the loss has been 8.7 percent. There are several factors that affect these numbers, including the greater reliance on single copy sales in Europe. But a significant factor has been the more rapid adoption of customer analytics to segment and target customers for pricing actions, retention efforts and bundle offers. American companies are rapidly adopting customer analytics, supported by data on their visitors’ online behaviors, to acquire digital subscribers. This use of customer data by publishers has arguably saved millions of newspaper subscribers that otherwise would no longer be customers had they adopted European standards of data usage.

The use of consumer data by companies is fundamentally driven by the profit motive, and consumers accept their personal data will be used by companies to offer them products and services directly or to help other companies advertise to them. This social contract has worked well, providing vast consumer benefits in the form of thousands of products and services available at little or no cost. Excluding breaches of financial data such as credit card numbers, damages from a company’s use of personal data have been difficult to prove in court. Economists could argue that consumers may be harmed by the reduction in value of their personal information due to the widespread availability of those data, and the lack of legal damages does not mean there are no costs to consumers from the use of their personal data.

Consumers have learned that some advertising is annoying, that information sharing may lead to more spam email, or that they may be more likely to suffer identity theft. The growing prevalence of digital advertising technology has led to greater adoption of ad blockers and information-protecting counter measures, trends that could threaten the information-in-exchange-for-services relationship that exists between consumers and companies such as Google, Twitter and Facebook. These trends may also threaten the content-in-exchange-for-advertising-impressions relationship publishers have with their digital readers.

It appears that a cost of the loss of privacy may be a loss of trust. If the actions of a few bad actors cause consumers to be more guarded with their personal data, the result may be fewer “free” products and services, less access to digital content and a lack of data for companies to use for business optimization. Given the experience of Europe, it suggests we are better off using these data but using them wisely.

ABOUT THE AUTHOR

  • Matt Lindsay
President, Mather Economics