The data economy is huge. In their 2018 report, Digital Realty valued the economic contribution of data at US$1.7 trillion per annum across the G7 countries alone. Even more astounding is the fact that much of the potential value of data is left untapped – Germany only extracts approximately 55% of the total potential value whilst the UK extracts around 58%. It’s no wonder why data is frequently cited to be the next ‘oil’; the new fuel that will propel the world’s economies forward.
Despite how thrilling these prospects of growth are, as we dart forward into this brave new world, we should take caution to reflect on where we have been and where we are headed – lest we inadvertently trip on some waylaid regulation and fall into a black hole that causes business and life as we know it to contract and disintegrate.
The data economy as it is
The unique characteristics of data as an asset has meant that the economies which have flourished from it have generally taken on a very particular form – monopolies.
Since data is negligible in value when viewed in isolation (and without the highly-trained eye of a data analyst), those who are able to extract value from it are invariably larger firms. These large firms have a large base of users feeding in information and the skilled manpower and technological infrastructure to handle this data. Obtaining any of these assets is no small feat for any new players trying to enter the market, hence data economies more often than not become monopolies. Whilst measuring the degree of competion present in a market is much more complicated, it’s telling that Google enjoys a profit margin of 23.43% whilst Facebook’s profit margin sits even slightly higher at 27.26%. It’s really no wonder since these two heavy-weights in the game of data-collection rake in 73% of advertising in the US.
The result of this is that most of the value generated by the data economy is captured by a handful of firms and people. Mark Zuckerberg, Jeff Bezos and Bill Gates are obviously some of the richest people in the world for a reason. Meanwhile, the average Joe roaming the internet who actually provides this data in the first place will most often get some kind of service in exchange for their information. Heaven forbid they try to sell it directly themselves – the hassle of being a broker for their own data will most likely outweigh the benefit of approximately 0.03 cents.
The evolution of the data economy
This rather inequitable state of affairs is slowly shifting, however. The EU’s General Data Protection Regulation (GDPR) was a landmark piece of regulatory architecture which sought to comprehensively protect the privacy and rights of the average EU citizen roaming the net. Finally approved in 2016, its enforcement began on 25 May 2018. In America, the US Federal Trade Commission has recently been busy slapping a whopping US$5 billion fine on the Zuckerberg empire in light of the Cambridge Analytica debacle, where Facebook inappropriately shared its users’ information. Meanwhile Australia, on July 1st of this year, began implementing the Consumer Data Right (CDR), which will provide customers across the banking, energy and telecommunications unprecedented access to information that these big companies hold on them.
It seems that around the world, governments are closing in on firms that hoard our personal data. This trend appears to be accompanied by the emergence of businesses and technologies which will restore greater control of personal data to those who generated it in the first place – us. Indeed, much of the buzz around blockchain can be attributed to the fact that it is being explored as a mechanism by which individual users can regain control over their own data. Datum uses this technology to store users’ personal data, enabling them to ‘keep their data private, filter and sell chunks of it to relevant buyers, or simply destroy it’. Arguably the most optimistic story I’ve heard is that of the students of Brown University in the USA, who are able to pay for their coffee by disclosing their email, majors and other personal information in lieu of cash.
Rebalancing the scales
These global trends point in the direction of more gains from the data economy being distributed more equally. Is it reasonable to now genuinely hope rather than scoff at the idea that one day the likes of Facebook will actually pay us? Well, not in the way that we might like to imagine. It’s difficult to foresee a future where we all achieve a net worth on par with Zuckerberg simply by handing over our personal information to companies. The reason for this is that data is extremely difficult to value and hence price is not an efficient mechanism to enable trading of data.
The new wave of regulations sweeping the globe in regards to data privacy and open data will hopefully return the gains from this booming economy to customers in the form of better products and services and more innovative and competitive markets rather than in the form of cash. One crucial cornerstone of Australia’s CDR is the mandate of Open Banking, which allows accredited institutions that fulfil certain security criteria to access the big four banks’ datasets, provided they have the consent of users who own that data. Whilst the early phases of Open Banking under the CDR only began on July 1st this year, the acceleration of innovation and increased competitive pressures in FinTech markets in the UK following the introduction of similar laws in 2017 is promising.
Of course, there remains heavy criticism that these new
regulations are rife with loopholes that limit the amount of protection and rights
that those who own personal data can enjoy, and that more red-tape will
actually stifle competition and innovation, especially amongst smaller players.
However, it is crucial to note that baby steps is key here. Regulating this
space is a scary tightrope act and clamping down too hard on data giants
quickly is as much a recipe for disaster as not clamping at all. As Australia
and the world watches these new regulations play out, we can observe and
evaluate the effects this initial wave of new regulations and then plan our
next step from there.
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