Uncommon Wisdom

Oct 21 2010   1:41PM GMT

Behind the Facebook breach: Why we should beware of ‘free’

Tom Nolle Tom Nolle Profile: Tom Nolle

The Facebook privacy breach scandal, where popular application providers shared private data without user permission, is only the latest in a series of targeting-related breaches of privacy and violations of “policy.” The Federal Trade Commission (FTC) has been of two minds regarding the issue, with some believing that regulation was necessary to protect consumers and others believing the industry could regulate itself. The current direction appears to be toward self-regulation, despite the mounting evidence that the industry is unwilling and unable to do that. What’s going on here, systemically?

First, to understand targeting, you have to understand motivation. The goal here is not to get the right ad in front of the right person, it’s to get ads in front of fewer wrong people. The ad industry knows that things like TV commercials blast ads to the point where it’s unlikely that there’s any possible consumer who doesn’t see them. Thus, a well-targeted ad isn’t any more likely to be seen by the prospective buyer than one that’s simply broadcast. What is likely is that a well-targeted ad will be seen by a lot fewer people who aren’t likely prospects. Even if you pay more for such ads, you spend less with “overspray.”

This advertiser goal sweeps into a consumer market with an appetite for free stuff. Nobody wants to pay for anything if they don’t have to — nobody really wants to pay for content, or Internet services, or online applications, or whatever. They’re therefore likely to surrender a certain amount of privacy to secure what they want, believing that the cost to them is less than the benefit. Since one could argue that the goal of regulation is to protect the public interest, it would seem illogical to regulate consumers out of the benefits for which they’ve elected to trade.

But that presupposes they’ll actually get what they want, which is the big fallacy of targeting. As I noted, all you need to do is run the numbers for online ads versus TV commercials to see that what’s happening isn’t a flight to quality in terms of consumer targets, but rather a flight away from the non-engaged. That flight is motivated by cost, not additional revenue, which makes it by necessity a less-than-zero-sum game. That means that success in targeting funds not more experiences, but less. Consumers are giving away their secrets to lose, rather than gain, and that’s something regulators should be addressing.

Regulators need to think more about the future of the industries they regulate; the financial crisis proves that point. Those in the industry need to think a bit, too, because the real lasting opportunities are created by the long-term money flows. Cost conservation never leads to anything but commoditization, no matter what part of the network food chain you’re in.

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