economics of privacy

The Economics of Privacy

Privacy and big data are two competing forces on the internet. Data collection and monetization are crushing any push-back from privacy advocates or anyone concerned about sharing their information. The internet itself is not created to be private, although we believe its the responsibility of the companies that operate online to protect their users’ information as much as possible. Many of the largest companies on the internet rely on a lack of privacy to keep their business models working. They use data they collect from users to target ads. Without this data, their business model wouldn’t work. There are companies with privacy-friendly business models or products that help protect users’ privacy.

The Economy of Big Data

The global “Big Data” market was estimated to be $23.56 billion in 2015. That number is expected to more than quadruple to $118.52 billion by 2022. Much of this growth is expected to come in the storage and server segment, as companies need a place to store all the data they collect. While this rush towards maximum data collection and monetization is still relatively new, its impacts on the internet as a whole have been massive. One of the big problems with this data economy is that there are a few companies that have mastered data collection and monetization. Since these firms are collecting data and gaining users so efficiently, people can feel like they aren’t being fairly compensated (whether with the product or with actual payment). According to a report from, every Google user makes up about $182 of Google’s $364 billion dollar market cap.

Read More: What is Surveillance Capitalism?

How Much Is Your Data Worth?

The companies that offer free products online are able to do so because of the revenue they generate from the data they collect. The cost of operating a company like Facebook or Google is minuscule in comparison to the revenue that they generate.

According to Facebook’s SEC filing for 2017, the company made $20.21 in revenue per user in 2017. Everything Facebook knows about you lets them target you very specifically with ads related to your interests and behavior. Is giving this data away worth 20 bucks a year to you? Facebook could probably make more money by charging users who don’t want to share their data. People who still want to connect with their friends and family on Facebook, but don’t want to sacrifice their privacy could pay a small fee to not share their data. Charging a few dollars a month could keep the service profitable, even using a business model that’s different from Facebook’s data collection and advertising model. According to a 2018 survey by Recode, 23 percent of respondents said they would be willing to pay to not have ads.

Are People Willing to Pay for Privacy?

“Paying for privacy” is a broad, sweeping concept that has endless possibilities for implementation. There are a number of products and services available that people purchase to protect their privacy. People spend money on VPNs, private email services, private file storage providers, and even privacy-based hardware. All of these are examples of cases when people are willing to spend money to protect their data from companies, hackers, and other third-parties.

Is There Actually a Privacy Crisis?

The media has portrayed companies like Facebook and Google as public enemies because of their so-called poor privacy practices. There is no doubt that the internet has been shaped by these companies and integrating their products into other websites and web services.

However, while privacy advocates focus heavily on “tech giants” there are plenty of privacy issues that have been ignored. This is due to the network effects of social media discussion of these issues. An article about Mark Zuckerberg’s Senate testimony is more likely to resonate with Facebook users than a case where an unheard of company lost the email addresses of thousands of people.

“Privacy is difficult to define. It means different things to different people. It has been described
as the protection of someone’s personal space and their right to be left alone (Warren and Brandeis,1890); as the control over and safeguard of personal information (Westin, 1967); and as an aspect of dignity, autonomy, and ultimately human freedom (Schoeman, 1992). While seemingly different, these definitions are related, because they pertain to the boundaries between the self and the others, between private and shared, or, in fact, public (Altman, 1975).” The Economics of Privacy

Privacy is Not Just an Internet Issue

Tyler Cowen, Professor of Economics at George Mason University, said “for most people, gossip from friends, relatives, colleagues, and acquaintances is a bigger privacy risk than is information garnered on-line.” Things like social media have just perpetuated this issue and people are now able to link these concepts to specific companies. For most information shared on social media sites, people have no expectation of privacy.

The Economics of Privacy“, published in the Journal of Economic Literature, makes an important point:

“In digital economies, consumers’ ability to make informed decisions about their privacy is severely hindered, because consumers are often in a position of imperfect or asymmetric information regarding when their data is collected, for what purposes, and with what consequences.”

If people are using the same tools that violate their privacy to research best practices for their data, they are less likely to find an accurate representation of the situation and to find a meaningful solution to their concerns. Since many companies that collect user data are fairly opaque in how they do so, it’s hard for anyone to understand where their data is going.

Conclusion: Data is Big Business, But So is Privacy

There are companies making billions of dollars from data acquired on the internet. In fact, most companies are using big data in some sense to improve their products and the efficiency of their businesses. Data is incredibly valuable and it can be implemented in a way that doesn’t put people’s private information at risk. Companies should ensure that their data processing keeps data secure at all stages.

For people who are concerned with keeping their data out of the hands of big companies like Facebook or Google, there are tons of companies that offer products to keep data private. VPN companies, tracker blockers and other internet tools help improve people’s internet experiences by limiting the data that websites can collect. These companies are also finding success due to increasing concern about online privacy.

Read More: How Data Scientists Can Make Privacy a Priority