The giant walled gardens that collect and control the use of online consumer data such as Facebook and Amazon are the new oil barons and they’re striking it rich. Facebook is worth more than $440 billion, even after taking a beating in the stock market from the recent scandal. This valuation reflects the vast amounts of personal consumer data that the company accumulates, using it to make huge profits through ads and other data-related services.
The scandal isn’t about Facebook collecting this data — every Facebook user agrees to that — it’s about allowing a political consulting firm to collect data from its users without them knowing. Facebook is already putting safeguards in place to prevent this kind of third-party access in the future.
But Facebook itself will still be collecting and using our data every day. It is one of the chief architects of the new socio-commercial arrangement whereby people routinely offer up personal information in return for the use of online services, and this arrangement is not likely to change.
The reality is that consumers have come to expect customized interactions that improve the shopping experience and save them time and money — and it’s the capture and analysis of their personal shopping data that makes this happen. The key is to have clear privacy policies in place and adhere to them. Most consumers are okay with this, as long as they feel supported and not spied upon.
Amazon the bookseller recognized the power of online consumer data and used it to juggernaut into one of the world’s largest retailers. Because with online shopping, unlike in physical stores, you can easily track what each shopper is interested in — i.e., what they searched for, browsed, etc.
Amazon uses this data to simplify and personalize the shopping experience, gaining legions of loyal customers. And, it makes it easy for other retailers to sell products on its site — whereby these retailers basically give away valuable customer data that Amazon then uses to establish the kind of customer relationships that help it “own” each customer.
This costs the retailers in the long run, as they pay the walled gardens for services to market their products based on data that they forfeit. They also run the risk of losing access to this data down the road, via pricing increases and other ways the walled gardens control access to both incoming and outgoing data.
We saw the power of this control when Acxiom, a major data provider to Facebook, took a 25% dip in its stock price due to Facebook’s response to the scandal. This move not only affects marketing programs that use Acxiom data, but shows how the walled gardens can unilaterally dictate data accessibility.
Today’s retail engine is increasingly dependent on the ability of retailers and brands to personalize their interactions with each consumer, and data is the oil that makes this engine run. The walled gardens are hoarding this oil, controlling it’s pricing and availability.
To take back the wealth, retailers need to better understand the value of their own data, and make sure they have the technology in place to collect and leverage it. They also need to think more carefully about how they use the services of the walled gardens, maintaining their own data as much as possible.
The walled gardens aren’t going to go away, and they’ll continue offering services that help retailers sell their products. But we all need to think very carefully about the true cost of these services over time. Because the more these barons control the engine of the new economy, the more retailers will be left by the roadside, running out of fuel.