Presidio Graduate School’s Macroeconomics course for Spring 2012, is authoring a series of articles. The articles on this “micro-blog” reflect reactions and thoughts on news items, economic theory, and other issues as they pertain to the concept of sustainability. Follow along here.
By Laura Erickson
Users like you and I are an integral part of the business ecosystem that services technology companies like Facebook and Google. As such, users are deserving of strategic business consideration much as natural ecosystems would be. The digital footprint that we leave on sites like Facebook is the manifestation of our natural relationships with each other, carried out online. Our personal data forms an incredibly important resource for many technology companies, leading some to regard the massive amounts of data we generate as the 21st century version of oil. Although potentially unlimited from a supply perspective, is our personal data a sustainable resource for the companies that rely on it?
Facebook’s much anticipated IPO has just netted the social-networking company equity in the range of $100 billion. Given that the monetary value of Facebook’s social network service is expected to be one of the largest IPOs ever, it’s worth stopping to think about the fuel that powers Facebook’s runaway success and whether it is sustainable.
Fueled by users and the illusion of privacy offered to us in sharing the details of our private lives within a quasi-public closed network, the Facebook machine is able to offer advertising partners high-quality targets. Of course there are also a whole lot of engineers and data centers that function as the gears of the platform and make it work. But the value of our data is explicit in Facebook’s $3.7 billion in revenues last year – about three quarters of which came from selling our preferences, interests, locations, and network influence to serve up highly targeted advertisements for a fee.
The way ad revenues are generated by companies like Facebook isn’t very transparent however and the sheer quantity of digital ads we experience has its own potential for disaffection besides. We simply don’t know whether our dataprints are being stored and used appropriately. In light of suspected or perceived privacy infractions, some people have even raised the possibility of deliberately polluting the data stream as the only effective way to fight back – endangering a quality supply of this renewable resource. That means companies like Facebook face a long-term business risk that could affect the availability and/or utility of our data as a resource. It is in their own best interest for these companies to consider personal data production as a business ecosystem service that is only sustained in an environment of consent and transparency.
This issue goes beyond mercurial privacy policies that serve more to obscure than to provide transparency. Case in point, the EU considers privacy to be a human right and is taking measures to ensure its protection. Legal standards such as the EU’s Data Protection Directive and the U.S. Federal Trade Commission’s policy that builds on President Obama’s Consumer Privacy Bill of Rights are being drafted and will come online soon in one form or another. These bills represent another threat to business as usual for firms who undervalue the role that openness and fairness play in sustaining the quality of personal data as a resource.
Companies like Facebook and Google, the most recognizable amongst thousands, must concern themselves with trust and transparency to ensure the availability of this crucial resource in the long-term. Introducing an opt-out or do-not-track feature is one solution to the privacy problem, but it would almost certainly affect profitability. Offering a fee-based, ad-free service is another solution. But how much are you willing to pay for privacy?
Laura Erickson is a first-year MBA student in Sustainable Management at Presidio Graduate School in San Francisco. When not studying, she is working at swissnex San Francisco, where she is responsible for the organization’s finance and operations as Associate Director. Her interest in sustainability is driven by a desire to keep people in the center of the conversation.