Why eBusiness Needs To Rethink The Value Of Personalization

In two recent instances in public forums, I’ve heard eBusiness executives talking about some rather disturbing uses of personal data. One was the CTO of a large big-box retailer who raised the possibility that health insurance companies could track our food purchases, sending dissuading texts to us whenever we chose to eat at greasy spoons or Burger King. Another was a software CEO who said it was inevitable that our cars would send real-time data on our speeds to our car insurance agencies. Laughter ensued from the audiences, but it should have been alarm and shock. I find it hard to believe that the good that could come from sharing this sort of data with companies (which, I would argue, don’t exactly have a reputation for benevolence) would outweigh the potential for abusing the data. Even in the retail world, there are a lot of companies trying to match users across different devices based on their IP addresses to create profiles of behavior. Call it lighter versions of the FBI “forensics” that took down David Petreaus. (Btw, Paula Broadwell has been a friend of mine for years and is one of the nicest, smartest, and most generous people I know. An issue that’s been overlooked is the violation of her privacy that kicked off this whole scandal. For the record, because people have asked me, I think she's been unfairly attacked at best and irreparably slandered at worst with digital information that should have never made its way to the light of day. I just hope she gets the last laugh when Angelina Jolie plays her in the movie.)

What incidents like this highlight is that our digital fingerprints can unwittingly reveal very personal information. And, ultimately, the way that people will be protected from being exploited or embarrassed by this data is that there will inevitably be legislation against it — in the same way that there is legislation against opening someone’s physical mailbox or disclosing what library books a person borrows.  And eBusinesses need to prepare themselves for that possibility. 

It’s not that personalization isn’t useful; all our data says that it’s marginally effective in most cases but hardly make-or-break if businesses don’t employ it.  The bigger issue, which really hasn’t been studied, is that it just often relies on a lot of gray areas for extracting data. And companies that hinge their value propositions on it (like,  say, many mobile marketing vendors out there) risk having the rug pulled out from under them if laws are instituted that regulate what consumer data can be used and by whom. 

Now, would such laws be so tragic? For companies reliant on this type of tracking, yes. But for marketers and eBusinesses, not really. Because many of them have built very successful businesses even absent this data over the years. We’re in an era now where “big data” is all the rage and companies have open specs for chief data scientists. But in sectors like the one I cover (retail), there’s such a thing as too much data. Traditional RFM (recency-frequency-monetary value) analysis and data cooperatives among marketers that rely on minimal levels of personal data continue to be incredibly effective. Furthermore, data just creates a mess. That’s why Netflix (which tried to pay someone a million dollars to try to improve its recommendation algorithm years ago without much success) has now reverted to a few dozen people tagging their new releases. And, ultimately, here's the best way to sell more things: create more innovative and useful products for people rather than spam people you’ve ferreted out on the Internet through their IP addresses. 

My conclusion: Let’s not overstate the value of personal data or fall into the trap of being seduced by the pitches of people whose businesses run on this data. Let me know what you think: Is legislation against the use of personal data inevitable or not? Can eBusinesses thrive without this data?

Comments

Legislation is indeed inevitable, where it doesn't already exist

From a European perspective, the relatively relaxed attitude towards commercial use of data in the United States often seems surprising. While attitudes obviously vary across Europe, the European Union's Data Protection Directive does provide some basic protection for European citizens (for instance, this directive is the reason that European sites now ask persmission to use cookies).
Legislation about the use of personal data is inevitable because it's inevitable that someone, somewhere, will abuse individual privacy in some excruciating way for commercial gain -- however hard the vast majority of marketing and eBusiness executives work to treat their customers with respect.

Usefulness vs. creepy surveillance

Just some personal reflections on targeted advertising online:

There's quite a difference between creepy surveillance and usefulness. I've noticed that Amazon and its subsidiaries like Audiobook tend to understand what I'm looking for and what I prefer. Facebook, however, has only a vague idea of my interests and seem to throw out haphazard recommendations of things I might like.

Then there is behavior based advertising on web browsers. More often than not, there's a reason why I abandoned a checkout process and I would rather not see that exact item reappear on a different site unless I'm offered a compelling reason to return to the store, like a discount or promotional bundle.

I see the most value in online geographical targeting which can be practical when it comes to pointing me to nearby brick-and-mortar stores.

Ultimately, I think the technology behind online advertising will mature in its accuracy and efficiency. As far as privacy and ethics, I don't yet see much danger in being tracked online. I can always opt-out of tracking and am not, perhaps naively, concerned about corporations sinisterly using my own data against me.