The Privacy Calculus

This past summer, Google updated its privacy policy.

Google used to keep the data obtained from DoubleClick (a subsidiary of Google which develops and provides Internet ad serving services) separated from the customers’ personal Gmail data and other Google account data, such as location data and Google search term data. With the new update, they can now combine these two data sets and create customer profiles. This will allow Google to provide more accurate data to advertisers for behavioural advertising purposes.

Privacy-sensitive people immediately got worried as they did not want to be profiled in the first place. There have been similar reactions when Facebook started its behavioural advertising initiative. Many people complained about the fact that they did not ask for this and that they are not interested in participating. Even more people complained that Facebook makes it difficult to opt-out by ‘hiding’ privacy settings. Marc Zuckerberg had to address these issues in a commentary to calm the storm down. Learning from all this, Google now makes a specific effort to ease the worries of its users by making the opt-out and other privacy settings very accessible and easy to change. As privacy becomes a primetime discussion more often than ever, Google is aware of its importance and pays close attention to managing this effectively.

Even if it is not managed effectively, as in the case of Facebook, the situation does not seem to result in a significant loss for these companies. Note that these are internet giants whose main source of income is advertising and we, as their users, are the product – not the customer. Even though there are and will always be user complaints, they do not seem to lose a significant portion of their customers.

However sensitive and ethically questionable their strategies may be, these issues may not truly impact these organizations. It may even not be a big deal for them, really. Why?

Because the outcome of our privacy calculus, where we weigh the benefits and risks of disclosing our personal data to these companies, ends in their favour. Privacy calculus is a trade-off analysis where we compare the potential losses and risks we associate with disclosing information in a specific context, to the benefits we anticipate from disclosing the same information. Most of the time we do this subconsciously, and following on the example above, we conclude that not using the services of Google or Facebook is more costly than living with the consequences of targeted behavioural advertising (TBA).

The secret to successful TBA by these companies may be that they manage to hook us up to their services way before they start with these potentially intrusive initiatives. Also the fact that we do not pay for their services may have a significant impact on our calculus.

How about the services we actually pay for?

Other retail companies, banks or media companies, who actually have access to significant amounts of customer data have also recently picked up on TBA. In the Belgian market, we have the example of retailers that create personalized advertising leaflets using our data (e.g. shopping behaviour which can also be considered to be private data). Rather recently, the debate of media companies using our viewing habits combined with our internet surfing habits and other types of data collected about us, has started an interesting debate. While companies aim to justify their decision to start with TBA and how this would improve the advertising experience of their customers, most privacy advocates ferociously attack these companies for invading their customers’ privacy.

Let’s emphasize though, a very similar discussion is also taking place in the US these days. On October 27th, the US Federal Communications Commission announced a new rule to protect personal privacy online, which forces internet-service providers to ask consumers for permission if they want to collect and share data that is potentially sensitive, such as financial information or browsing history.

Observing this worldwide trend of endless data-driven business opportunities, the changing regulatory environment and sceptical consumers, what can the senior management of companies do to prevent such hostile criticism against consumer data-driven advertising? What can the senior management do to turn the privacy calculus in their favour? Here are some best practices:

  • Do your homework
    It is critical to get to know your customer base and their attitudes towards privacy. How about a focus group? An online survey? Know what your customers think about your data gathering and analysis intentions.
  • Take the responsibility of creating awareness
    This is something often overlooked; recent research1 shows that the majority of consumers are not aware of the amount and the nature of data companies are collecting about them. It is important to take responsibility for awareness creation and clarify what you are collecting about them and why. With transparency, comes trust. With trust, comes consent.
  • Make critical information accessible
    Nobody reads the long, boring text of privacy policies. Be creative in you methods to get the information across, using multiple outlets and methods.
  • What’s in it for me?
    Do not forget the privacy calculus – which benefits are you offering to your customers in exchange for their personal information? Make sure there is something in it for them, tangible or intangible; make it visible by communicating well!

Data-driven advertising is booming worldwide,  but it is not without its challenges. Originally with roots in philosophy, privacy and ethics are two questions intertwined with TBA, and they require a solution in computer science2, along with responsible steering. We hope our suggestions help you steer responsibly.

1 Morey, T. Forbath, T. and Schoop, A. “Customer Data: Designing for Transparency and Trust,” Harvard Business Review, May 2015.
2 Hartnett, K. “How Humans Can Force the Machines to Play Fair,” Wired Magazine, November 26th 2016.

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