The Value of Talking About the Value of Consumer Data

From the concept of “financial incentives” in the California Consumer Protection Act (CCPA) to Andrew Yang’s Data Dividend Project, there has been an increased call for companies to compensate consumers for their data.

These efforts, which appear to have sprung from the growing sentiment that companies are “stealing” consumer data, seem misplaced. The complaints about the collection and use of consumer data online are generally around a lack of transparency, “creepy” uses of data, and lack of consumer choice/control.

Paying consumers for their data addresses none of those concerns. From the numbers I’ve seen, the value of a consumer’s data on an individual basis is pretty low. Offering consumers a few dollars while failing to address the more problematic issues surrounding data use seems to miss the mark.

Below I look at the push for valuing data, the risks of the pay for privacy model, and where to go from here.

The CCPA Drives the Push to Value Consumer Data

The CCPA prohibits companies from discriminating against consumers who exercise their rights under the CCPA unless the difference in services is “reasonably related to the value of the consumer’s data to the business.” Taking advantage of this exception requires a company to demonstrate the value of the consumers’ data to its business.

Companies are also permitted to offer “financial incentives,” which are programs, benefits, or offers designed to encourage consumers to consent to collecting, retaining, or selling their personal information. Companies must disclose how they calculate the value of consumer data for these financial incentives.

To my knowledge, there is no uniform standard of calculating the value of consumers’ data, and most companies don’t calculate this value on an individual basis.  Companies may measure KPIs, but not the value of the raw data.

The CCPA regulations provide the following metrics for calculating data:

  • Average value of data to the business. The marginal value and the average value to the business of the sale, collection, or deletion of a consumer’s data;
  • Aggregate average value. The aggregate value to the business of the sale, collection, or deletion of consumers’ data divided by the total number of consumers;
  • Revenue generation. Revenue generated by the business from sale, collection, or retention of consumers’ data;
  • Cost of collection. Costs related to the sale, collection, or retention of consumers’ personal information;
  • Expenses tied to offer. Expenses related to the offer, provision, or imposition of any financial incentive or price or service difference;
  • Profit generated by the business from sale, collection, or retention of consumers’ personal information; and
  • Other. Any other practical and reasonably reliable method of calculation.

While this guidance is helpful and may provide a framework for companies that have a business need for calculating data, offering multiple options for calculation means there will be little consistency in how this is applied and likely little value.

The other side of the argument for valuing consumer data comes from those pushing to require companies to compensate consumers for data. In 2009, California’s Governor Newsom said at his state of the state address: “…consumers should also be able to share in the wealth that is created from their data.” With this, he argued that consumers should receive a “data dividend” that would require companies to pay consumers for using their data (a tax on data use).

Earlier this year, former presidential candidate Andrew Yang announced the creation of the Data Dividend Project. This program promises to negotiate with businesses on behalf of consumers to pay consumers for their data. The Data Dividend follows several other failed attempts to give consumers property rights over their online data.

Pay for Privacy vs. Pay for Data: Who Will Lose?

A transactional approach to privacy is a losing proposition for most Americans, who will receive little in exchange for what they give up. The first issue is the risk that some consumers’ data will be more valuable than others. Is a segment of high earners or frequent shoppers worth more than a segment of low-income or infrequent shoppers? Perhaps.

The second issue is the risk that low or middle-income consumers will be more likely to trade privacy for payment. Studies repeatedly show that while consumers want companies to collect less data, they are unwilling to pay subscription fees or other payments for that result. The wealthy and others with more disposable income may be willing to make those additional payments, but the average consumer will not.

In a recent opposition to the California Privacy Rights Act (“CPRA”), an amendment to the CCPA that will be on the California ballot in November, several nonprofit organizations, including the ACLU and Color of Change, voiced concern that pay for privacy schemes “would provide superior internet and online services for those who pay more to protect their confidential information and inferior service for the rest of Californians.”

The Electronic Frontier Foundation has also argued that pay for privacy schemes lead to unequal classes of privacy “haves” and “have-nots,” depending upon the user’s income.

What Should We Think About Instead?

New privacy regulations and platform changes that will effectively kill third-party cookies are pushing many companies to shore up their first-party data stash. While financial incentives are tempting, using them to encourage data collection may not be the best long term strategy.

Rather than setting up separate classes of consumers or getting tied up in unhelpful value calculations, companies may be more effective if they offer consumers safety, security, and trust instead. When consumers understand both the value of what they receive in exchange for their data and how that data is or will be used, they may be less likely to opt-out of a financial incentive program or seek a short-term payment over a long-term relationship.

Ultimately, your best data sources will be consumers who give you data because they trust you, not because you paid them.

This article is the third written in a series by Jessica B. Lee, Partner, Co-Chair, Privacy, Security & Data Innovations at Loeb & Loeb:

  1. California in Chaos: 3 Things You Need to Know to Stay on Top of CCPA
  2. The Value of Talking About the Value of Consumer Data
  3. The Trouble with Consumer Choice

If you work at a publisher, agency or brand, and you need to stay on top of privacy regs, you should register for AdMonsters Publisher Forum Virtual, where on Aug. 26, Lee will lead a discussion on the latest developments with CCPA and its implications for digital media and advertising, as well as what we can expect in the future—featuring Farah Zaman, VP, Chief Privacy Officer, Meredith Corporation and Ashley Tan, Assistant General Counsel, Buzzfeed.