Special Feature
Part of a ZDNet Special Feature: Security and Privacy: New Challenges

Balancing profits and customer privacy when monetizing big data and IoT

Companies must balance profits and privacy when monetizing their data, otherwise they risk falling off the 'trust cliff' and alienating their customers.

Following in the footsteps of virtualization and cloud computing, big data is fast emerging from its "honeymoon" stage in businesses, with corporate boards and C-level executives wanting to see tangible results from their big data investments.

Consequently, more companies are clamoring to 'monetize' their data, especially data that has been gleaned from the web and other unstructured Internet of Things (IoT) data collection points that are commonly known as 'big data'.

Monetizing these days comes in two forms:

  1. You either find ways to get optimum value (usually in terms of optimized revenues) from customers based upon what you can learn about them and their buying habits; or
  2. You collect bastions of consumer data and then sell it to other third-party businesses as an additional revenue channel.

Does it work?

At least one major telco was able to increase revenue by one to two percent, thanks to an ability to present anticipatory offers of more data or minutes based upon the analysis of real-time big data streams from consumer mobile phones that informed it when consumers were about to run out of data or call allocations.

In a separate study that explored the revenue potential of selling 'big data' collected from mobile phones, SAP estimated that the worldwide market for selling mobile phone user behavior data may reach $9.6 billion by 2016.

There are few boards or C-level executives who wouldn't be happy to see this incremental income from data monetization -- but just how far can it go before consumers and regulatory agencies begin to get concerned about privacy?

The right of privacy, which Justice Louis Brandeis described as the "right to be left alone," is a fundamental constitutional right.

Concern over whether individuals' privacy rights are being breached by government agencies and commercial companies collecting demographic and behavioral information has prompted organizations like the Digital 4th Coalition to call for reforms to the Electronic Communications Privacy Act (ECPA), which was originated in 1968 and updated in 1986, but has since failed to keep pace with technology advancements. Organizations like Digital 4th feel that outdated ECPA guidelines subject Americans' online privacy rights to unwarranted government intrusion.

Of course, the U.S. Constitution and the ECPA are intended to regulate government activities. As such, they don't necessarily pertain to what private companies might do. In that area, the Federal Trade Commission (FTC) plays a dominant role in disseminating privacy guidelines and enforcement for commercial enterprises. By law, these enterprises must annually disclose to customers which data they collect, how the data will be secured, and whether this data will be shared with third parties. The argument is that as long as there is fair disclosure by companies to consumers, customer data may be shared, and there are any consumers who are perfectly fine with this, and do not care how their data is shared.

But there is also another side of company-consumer relationships: trust.

In a 2014 study performed by Gigya, which provides customer relations products and solutions, 45 percent of U.S. consumers said that they were more willing to share information with brands that make it extremely clear to them just how their information will be used. In the same survey, 23 percent of consumers said that they had never used social login to sign into a site or an app -- and the number-one reason was fear that the company was looking to sell their data.

Clearly, there is a 'line' that companies must find when it comes to consumer trust and gathering and sharing consumer information -- a line that once crossed, could mean irretrievable losses in both customers and revenues.

Where is that line?

Blair Christie, who is Cisco's Chief Marketing Officer, blogged in January, 2015, about a customer trust study on U.S. and U.K. consumers that Cisco shared at the National Retail Federation's conference in New York. "The findings point to the need for retailers to provide 'hyper-relevant' shopping experiences that deliver value to the consumer in real time throughout the shopping lifecycle," blogged Christie. "Hyper-relevance comes with the ability to dynamically compare real-time customer information with historical data, and the resulting insights allow retailers to improve operations and the customer experience. At stake, according to our research, is an estimated profit improvement of 15.6 percent for an illustrative $20 billion retailer that builds agile business processes for turning these insights into value."

At the same time, however, Christie was quick to point out that the same consumers in the study were averse to sharing their information with companies that they didn't have a 'trust' relationship with. According to the study, 51 percent of consumer respondents were comfortable with sharing information such as their name and age with a trusted retailer; 49 percent were comfortable with the retailer keeping tabs on their purchasing history; and 41 percent didn't mind if the company kept track of their personal interests and hobbies. In stark contrast, only 25 percent wanted their retailers to acquire information about what they had purchased at other companies; only 23 percent wanted retailers to track where they shopped at; only 9 percent wanted to share family information; and a mere eight percent wanted to share their financial information.

Christie concluded that there was a 'trust cliff' -- a point where there was a steep drop-off in customers' willingness to share certain types of personal information. A significant 16 percent of respondents in the Cisco study were not willing to share any personal information at all.

Companies must find this 'trust cliff' in their own interaction models with customers as part of their customer information gathering strategies. They also should determine if they can overcome the 'trust cliff' by cultivating higher levels of trust with their customers -- and where they should draw the line for customer privacy concerns. In most customer-retailer behavior models today, making a side business by selling off customer data is not a way to gain that trust.

Several methods have proven to be effective when it comes to company-customer trust building over information:

  • If the company is clear on its policy of information gathering and customers can understand what the policies are without getting buried in a heap of legalese, there is a greater transparency about the process and customers feel better about it.
  • If companies use 'opt in' instead of 'opt out' methods for customer information sharing, customers feel that they have more direct control over their privacy and how their information is shared.
  • If customers opt in for emails, offers and so on, those offers should be relevant, so that customers don't begin to feel that they just opted in for an avalanche of junk mail.

Companies should start with keeping customer information under their own management. If they sell to third parties, they should pursue an 'opt in' strategy with customers first -- and also show customers the benefits of having third parties obtain their information. For instance, if you do business regularly with a travel agency, you might also be interested in having the travel agency share certain information with airlines, rental car agencies or hotels if you can receive great offers from them.

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