November 22, 2011 in Knowledge@Wharton
'Drinking from a Fire Hose': Has Consumer Data Mining Gone Too Far?
In a world of endless information sharing, consumers have become the product. Platforms such as Google, Facebook, Foursquare and Twitter are the new factory floor, and online users, who leave digital crumbs as they browse the web and tap into social networks, generate data that can be bought and sold. Every tweet tweeted, badge unlocked, website searched and "Like" button clicked adds to the growing inventory of user information. Data miners then sort it, package it, market it -- and companies use it to better target customers.
"Even traditional companies have discovered they can generate totally new lines of business by collecting and using their customers' information," says Andrea Matwyshyn, a professor of legal studies and business ethics at Wharton. From grocers to gas stations, retailers offer loyalty cards that track purchases. Visa has filed a patent for a method to deliver targeted online ads to consumers, based in part on their offline credit card spending. And through social media websites like Foursquare, people bring information about their offline spending back into the online world.
Privacy advocates say that the collection of data has gone too far, exploiting consumers who have less and less control over how their personal information is doled out. Recently, the drumbeat for protection of digital privacy has been growing louder. Federal Trade Commission chairman Jon Leibowitz in October denounced online data collectors as "cyberazzi" and called for a "Do Not Track" mechanism that would help consumers better control the online information they share. Facebook is nearing a settlement with the U.S. government over charges that it made "material retroactive changes" to its privacy policies in December 2009, rendering information about subscribers public by default without their consent. Individuals and groups have sued tech firms, search engines and social media companies, alleging privacy violations, and lawmakers have introduced several pieces of legislation to make data collection more transparent.
Others argue that the data trove breaks down barriers and opens doors, giving companies unprecedented insight into what customers want and helping them deliver more of what consumers need. According to Anindya Ghose, a visiting professor at Wharton and co-director of New York University's
Center for Digital Economy Research,
consumers are benefiting more than ever from the free flow of information.
"Companies can use my interaction with my friends on Facebook to personalize and highly customize products and services for me," he says. Such personalization would take into account not just one individual's web-browsing behavior, but also the behaviors of connections within that person's social network. ...
Old Hat, New Color
Viewing consumer information as a product is nothing new, says Wharton marketing professor Jonah Berger, who calls the discussion about online data mining "an old hat in a new color." Radio, television, magazines and newspapers have long leveraged their audiences to woo advertisers. For years, direct marketers and catalogue companies assembled phone and mailing lists that could be sold. "Companies have been mining consumer data for a long time," notes Berger. Today, he adds, there is simply more data.
The data keeps expanding as increasing numbers of online users forego privacy in exchange for social connections. A June 2011 survey by Consumer Reports National Research Center found that 34% of Facebook users shared their full birth date online and 21% shared their children's names and photos. Roughly one in five didn't bother using Facebook's privacy controls. ...
Back to the Customer
Wharton marketing professor Peter Fader believes much of the controversy around data collection stems from sloppy marketing. "Taking the data too literally draws misleading conclusions and puts out messages that are not only ineffective but almost creepy," says Fader, co-director of the Wharton Customer Analytics Initiative. "All of this fuss about privacy would go away if companies could learn the lessons of history."