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Consumers Are the Serfs of the Feudal Internet Companies

In one of the email conversations with my expert colleagues from around the globe, an interesting article was discussed written by Bruce Scheier in Wired: When it comes to security, we’re back to feudalism.

An interesting aspect of the discussion was the conclusion that Google’s and Facebook’s consumers are not their customers. The distinction is important, because consumers are the product being sold to their actual customers who are their advertisers.

This means that Google and Facebook are B2B companies—theirs is not a B2C play—and in that respect they are similar to the commercial broadcasters.

So what has been mentioned on previous occasions about the business models of the commercial broadcasters, also applies to a certain extent to the social media companies; of course, with one very important difference—the social media have valuable data on their consumers, which they are monetising in a big way.

The B2B model of both groups makes these companies largely oblivious to what consumers actually want and need. Their commercial focus is on their ‘real’ customers, the advertisers—this situation would be rather different if these consumers were also customers.

Social media consumers, therefore, have little say in the commercial data transactions of these companies and are simply used very much in the same way that serfs were used in the medieval feudal systems; they are just chattels.

However, as we have been arguing for over a decade, the situation could and should be much better in the 21st century. These companies should use the data from their consumers on a permission-based footing. It is very clear that consumers are happy to share data with the many companies operating in the digital economy; however they are most unhappy that these companies totally disrespect their wishes for some basic privacy rules.

None of the companies involved have shown the slightest interest in engaging their consumers in any serious way. They act like those feudal medieval lords, all operating their own systems, with no openness or transparency. And whatever tools they do make available are limited and complex, and hard to find on their websites. Consumers have to handle the intricacies of all those various companies in different ways, obviously an untenable situation.

Clearly, as we have advocated on many occasions, the situation should be the other way around. The consumers should be able to manage their own permission-based facility, and, based on that, communicate with the companies they want to be engaged with. And those they trust would most likely obtain more data than those they don’t.

Based on what people are already prepared to share, these companies should not have to be afraid that they would be unable to continue with their business models. Most likely these business models would only be enhanced with more direct involvement from the customers. That is, of course, with those companies they believe they can trust and are ethical in their commercial behaviour. Recent research in the USA has indicated that 90% of the users don’t trust the companies that are using these big data analytics. Also, interestingly, on the other hand 70% of companies involved in big data analytics are disappointed with the results. So a better system could be a win-win situation for both the demand and the supply side.

In our email conversations Doc Searls quoted statistics from a presentation he had recently given.

Statistics shows customers don’t trust B2B companies

  • 91% agree that consumers have lost control over how personal info is collected and used by companies
  • 91.55% lie or hide to keep from being known by name online
  • 92% worry about their privacy
  • Ad & tracking blocking stood at 22.5% in August 2013, among Millennials, it’s 41%

(Various sources quoted by Doc Searls)

So what is the solution? Obviously a more voluntary approach from the companies involved is unlikely to happen, so there certainly is room for government intervention or government guidance. The trouble is that governments themselves are equally bad in their behaviour regarding respecting the privacy of their citizens.

But there is a bit of light at the end of the tunnel. While the Anglo-Saxon countries are gung-ho on their surveillance state model, the Netherlands and Chile have clearly rejected this. And Germany is also far more wary about becoming a surveillance state—they know from experience how bad this can become.

With little action from the companies involved and also from very few of the key countries they operate in, the third solution is for the citizens to turn in the direction of new technology solutions. They are assisted here by a large group of independent entrepreneurs who are working on solutions that will bring the power back to the citizens. And there are indeed already plenty of such initiatives.

Obviously it will not be easy to fight the might of these companies, but as the majority of consumers are very unhappy with the current situation something will have to give. Once people power is better facilitated by the right tools the commercial organisations will have no option but to change their tactics and get their consumers’ permission to use their data.

Obviously the situation for governments will be different, but they too will see the consequences of their unbridled attack on privacy as new tools make it more difficult to continue their mass scale surveillance. Unfortunately for them, the first ones who are going to use those tools will be the criminals and terrorists they want to catch. But unless governments take the privacy issues more seriously and work in a more open and transparent way with their citizens they will continue to get stiff resistance from their people, 99% of whom are well-behaved, law-abiding citizens.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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Something more subtle going on Michael Roberts  –  Mar 26, 2015 2:31 AM

Excellent post!  But the historic model of provider-consumer value exchange is evolving.  We seem to have entered an era of an elaborate barter system of unpriced digital goods.  To cite one example of many, as a frequent user of Google, I get “free” i.e., unpriced, access to an amazing variety of goods, starting with about the best email system around, and continuing to a world of digital maps which will take me to almost any spot on the globe instantaneously, in living color, and on to the world’s most powerful general purpose information search engine.

What do I barter in return?  My unpriced time, of course. Cumulatively, it is hours and hours of psychological warfare in which advertisers get to tempt me to purchase their goods.

Is it a fair exchange, and should government(s) be involved to protect me?  Alas, no one knows.  About all that can be said is more than a billion humans are now involved, each with an individual preference function. No government, i.e., large bureaucratic machine, could possibly detect a preference center of gravity, and for any adopted, there would be as many aggrieved as satisfied users.

Thx Paul Budde  –  Mar 26, 2015 5:10 AM

Good addition for the discussion Michael.

Multi-sided markets (MSM) Alex Tajirian  –  Mar 26, 2015 9:16 AM

Google and Facebook are examples of platforms for multi-sided markets (MSM). The Google platform has two sides: advertisers and users. Facebook has three: advertisers, personalized pages, and visitors.  Platforms must charge one or all sides. Both these companies charge only one side, the advertisers. Platforms derive their competitive advantage not from unique or core competancies but from connecting distinct sides that result in network effects. Thus, any meaningful analyses of the companies and the participants must be framed within the context of multi-sided market competition.

Interesting observation Paul Budde  –  Mar 27, 2015 7:01 AM

Interesting observation Alex, I like that succinct analysis. Paul

A more honest quid pro quo Christopher Parente  –  Mar 31, 2015 7:51 PM

It’s long been my contention that businesses should be more honest with consumers about what information is tracked online. Many times the free services being provided make some sharing of online activity advantageous, as noted by Michael Roberts. Companies should be much more transparent and proactive about explaining the exchange, and I think this plus clear rules of the road would dispel some consumer online anxiety. 

That said, you’re stretching Scheier’s 2012 article a bit. He talks about how companies have become dependent on the tech giants, using the colorful feudal analogy. He’s focused on the outsourcing of security, not loss of privacy, and says that for consumers and small business, the feudal arrangement is usually a pretty good deal.

Stretching Paul Budde  –  Apr 1, 2015 5:45 AM

Hi Chris, yes I used Scheiers article to expand on it, perhaps a bit cheeky but I thought it fitted well in what we see happening. I am also a happy Google and Facebook user, despite the fact that I don’t like it that I am not in charge of what happens with my data.

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