If regulators and lawyers limit the use of data, advertising online will become less efficient.
L. Gordon Crovitz, The Wall Street Journal, July 15, 2012.
For a measure of how technology is changing human expectations, consider the "cookies" on your computers. These invisible text files are how websites track activity, delivering to marketers detailed information about individual behavior and preferences. In exchange for data, we get highly personalized online services.
This use of cookies fuels the economics of the Web, but it has also caused anxiety as people have had to reconsider analog-era expectations of privacy to embrace digital-era benefits of sharing data. A Wall Street Journal report last week caused some consternation when it revealed how the travel website Orbitz uses data to give different offers to people who use Apple computers and those using Windows-based machines.
Data analysts at Orbitz detected patterns showing that Apple users spend up to 30% more a night on hotels and are likelier to book four- or five-star lodgings than PC users. Apple users buy more expensive computers, and the average household income for adult owners of Mac computers is almost $100,000, compared with about $75,000 for PC owners, according to Forrester.
When Orbitz used these data to feature higher-priced hotels more prominently in Apple users' search results, privacy lobbyists claimed outrage. But even in the analog era, readers of this newspaper saw advertisements for different products and services than readers of less high-end papers.
It wouldn't be surprising if data showed less price sensitivity among Apple users, so they could be offered higher prices, but at least for now Orbitz shows the same prices for the same rooms regardless of how users access the site. Price-customization software is being used by many retailers so that online buyers who click directly to pay for products do not get special offers shown to less-persuaded shoppers.
These uses of personal data can seem a bit creepy, but the evidence also shows how quickly consumers have gotten used to being tracked. When given the choice, few consumers opt out of cookies. People accept the benefits of more relevant ads and more personalized websites in exchange for letting marketers track their interests.
There is an enormous industry in predictive analytics and "big data." Consumers are loyal to Amazon in part because of its recommendation tools—if you liked that book, you may like this one—which mine user data to determine relevancy. Facebook says it will deliver targeted ads based on what other websites and apps users access. Apple tells users it will target ads to them based on apps they download. Google delivers advertising based on how people use its various services, including what they write in messages sent via Gmail.
Left alone, people would continue to make their own evolving judgments about how much data to share. Instead, regulators issue edicts. The Federal Trade Commission has extracted 20-year consent decrees from Google, Facebook, Twitter and Myspace, giving regulators broad review over their privacy and data practices. This would be fine if the purpose were to ensure that companies comply with disclosures about how they use data, but the FTC wants to define privacy standards.
One result of FTC meddling is that plaintiff lawyers have open invitations to file nuisance suits on behalf of supposed privacy victims. A federal judge is considering a $20 million settlement offer by Facebook, which has agreed to make its disclosures clearer that when users click "Like" to promote a product on Facebook, their names and photos can be used.
The $20 million would be divided equally between plaintiff lawyers and privacy interest groups such as the Electronic Frontier Foundation. Nothing would go to the allegedly harmed 900 million Facebook users.
"The plaintiff's lawyers get rich, class members get little and nonprofit groups often reap millions by urging judges to approve the deal regardless of its merits," Wired magazine reported last week on the Facebook settlement. This case "provides a glimpse into the dark side of large class-action settlements."
If regulators and lawyers push too hard to limit the use of cookie data, advertising online will become less efficient. This in turn will reduce the amount of free, advertising-supported services enjoyed by consumers, such as social media, entertainment and email.
Consumers seem to understand there's no such thing as a free lunch, even online: If they are not paying for a product, then for better or worse, they are the product. Each consumer should be able to decide how to make this trade-off between sharing data and getting advertising-supported services.
The privacy debate shows how naive Silicon Valley firms were to sign 20-year agreements granting Washington regulators broad authority over how they operate. Digital entrepreneurs should be allowed to innovate freely, with consumers also free to choose their individual trade-off between how their data are used and the benefits they get in return. Overregulation is the way the digital cookie crumbles.
A version of this article appeared July 16, 2012, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: The Way the Digital Cookie Crumbles.
