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Monday
Jun302014

Data Doesn't Need to Be Free, But it Does Need to Have Sex 

How do we pay for the services we want to create and use? That is the question. Systems like Twitter, Instagram, Pinterest and all the other services you love are not cheap to build at scale. Grow now and figure out your business model later as the VC funding disappears, like hope, is not a sustainable strategy. If we want new services that stick around we are going to have to figure out a way for them to make money.

I’m going to argue here that a business model that could make money for software companies, while benefiting users, is creating an open market for data. Yes, your data. For sale. On an open market. For anyone to buy. Privacy is dead. Isn’t it time we leverage the death of privacy for our own gain?

The idea is to create an ecosystem around the production, consumption, and exploitation of data so that all the players can get the energy they need to live and prosper.

The proposed model:

  • Data is a valuable resource on which much of the future economy rests.

  • Currently data is a zero-sum game, like iron that can’t be mined, transported, smelted, molded, engineered, or used to build the infrastructure that drives the engines of commerce.

  • This is because data is not a commodity that can be used to build more value in a larger value chain. Data can’t generally be bought or sold on an Open Market. It is not transformed. It is not repurposed. It is not combined with other things to make something new. Data has no multiplier effect while sitting behind high Garden Walls.

  • For data to be a viable material on which to build an economy that generates increasing amounts of wealth:

    • Data must be freely traded.

    • Data must be useful for something other than targeting ads.

The only way to make data valuable in the Adam Smith sense is to make data a marketable product. Data is expensive to keep. Currently advertising is the method of paying services. The only way to make advertising work is to control the UI. Which means that all APIs have to be locked down to capture revenues. Reducing costs won’t change anything really because revenue will still be based on the hoarding of data.

So we need to broaden the economic model for using data. An economy revolves around goods and services. Services like getting your haircut or a heart transplant. Goods like a camera. Data must be usable in those ways to create a market in which it makes sense for data to be traded, which would allow access to that data so the other entities could make economic use of that data too outside the original collector’s area of specialty.

Currently there’s no commodity market for raw data materials. If you want to start a Kickstarter project all the materials can be bought, design services, manufacturing systems, distribution, etc. all done, because there’s a market that enables higher level services to be built on top. Data has no such market. Data is the equivalent of a fully vertical industry. Collection, analysis, etc is accomplished by one entity.

We are essentially trading data for a service. Data has the most value when it is owned and sold on an open market, not given for use of a service so it’s dead and unusable. That makes for a dead economy. Historically the world economy grew immensely when it transitioned to a free trade and away from  mercantilist system. That’s the same sort of transition we need for data driven economies.

 

We’ll explore the idea of creating an open market for data as a way to create a vibrant ecosystem for funding rich services in later posts.

 

Reader Comments (13)

If privacy is dead, please feel free to kickstart this new data ecosystem with your bank account number, social security number, address, phone number, mother's maiden name, any and all PINs and passwords you use.

June 30, 2014 | Unregistered CommenterBrett

Oh my God, could you get any more utterly banal with the titles? Ok, so I scrolled down here the first time to just rant about how much you gave away with the title alone, then I thought, no, I'll give you the benefit of the doubt. Oh my God was I wrong

> How do we pay for the services we want to create and use? That is the question. Systems like Twitter, Instagram, Pinterest and all the other services you love are not cheap to build at scale. Grow now and figure out your business model later as the VC funding disappears, like hope, is not a sustainable strategy. If we want new services that stick around we are going to have to figure out a way for them to make money.

Companies make money by some customer giving it to them. If delusional business models don't play out, its because the company wasn't viable in the first place. Finding evermore intensely nuanced insanities to describe the situation does not remedy the simple fact: giving some high cost thing of the no otherwise perceived value (and thus zero revenue generating) for free is simply a daft thing to try in the first place.

June 30, 2014 | Unregistered CommenterDavid W

I disagree with the premise of this article. Privacy is not dead, just under attack. Bigdata generated by human activity should belong, be owned and controlled by individuals generating it and not by the website operators.

June 30, 2014 | Unregistered CommenterMatic

Mr. Lanier disagrees with this article more precisely than I could express in this simple comment: http://www.amazon.com/Who-Owns-Future-Jaron-Lanier-ebook/dp/B008J2AEY8

Interestingly enough, Jennifer Lyn Morone Inc. might be more in agreement, although perhaps not fully: http://www.economist.com/blogs/schumpeter/2014/06/who-owns-your-personal-data

June 30, 2014 | Unregistered CommenterTristan Slominski

Ignoring flame wars about privacy and sex-filled titles, the general thesis of this post is brilliant.

Looking forward to future posts on this, there are major challenges:
1.) Incentivizing users to post their data, no rewards -> no users -> no data
2.) Enabling users to post their data (via app-hooks, Facebook-hooks, Fitbit-hooks, etc...), DATA can't be uploaded manually (whereas tweets are input manually)
3.) Creating the humongous data-store capable of storing all this data
4.) Defining/Enabling queries that people will pay for in a cost effective manner

The thesis that too much data behind locked doors decreases the data's value is dead right and a lot of data can be shared (post anonimization) publicly with very positive results (e.g. publishing academic papers, doctors sharing new surgery techniques, etc...).

June 30, 2014 | Unregistered CommenterRussell Sullivan

I look forward to your exploration of this idea, Todd. The biggest question in my mind is what kind of entity/entities would we be able to trust with this amount of power? I'm assuming that the people who's data is for sale will have some kind of agency in the system you are proposing.

June 30, 2014 | Unregistered CommenterChad von Nau

Brett, if you wan't to make sensitive data available for a price then shouldn't you have that ability? Data is currently in use with 3rd parties in any case. Your bank account is held through a relationship with your bank and is used by bank software, accounting software, and tax software. Your SSN is created through a government relationship and is used in all sorts of transactions. Password managers keeps passwords for many people. Your browser no doubt has your passwords, credit card numbers, and other sensitive data. My phone number is a search a way. And I'm not sure what my mom has to do with anything.

So all this data is already in use by third parties, many of our own choosing when it suits our purposes. Why not make the decision for all your data? And to make the decision efficiently with the best return requires some sort of market system.

July 2, 2014 | Registered CommenterTodd Hoff

David, couldn't agree more. Giving something away for free that has value doesn't make a lot of sense.

July 2, 2014 | Registered CommenterTodd Hoff

Matic, the privacy is dead argument is a bit of a wind up. I'll make the point later that data should be under joint ownership. It comes about because of your relationship with a service and is generated using the service. So it should not be owned completely by either you or the service. You don't own it because it's the resources of the service that you freely used that helped generate the data, it's their resources that maintain it, and their resources that make it useful. And they don't own the data completely because it flows out of your identity and would not exist if were not for your effort at inputting and using the system.

Fortunately we have a long history of using licensing agreements to deal with ownership issues and rights agreements for the use of content. Behind the scenes, for example, YouTube is splitting ad revenue between users when bits of content are reused in other works. Why couldn't that same sort of model work for our data?

July 2, 2014 | Registered CommenterTodd Hoff

Tristan, Who owns the future? Isn't that we are trying to decide now? My position is that data arises out of a relationship that gives joint ownership to the parties that participate in that relationship. What that means is a matter of negotiation, but I would argue we should have legal rights to how this data is used, just not all rights because that's not how the data was generated.

Historically one lens we can use to look at the world is to see everything in terms of how resources have been exploited over the ages. We see the entire human diaspora largely determined by the search for and exploitation of resources. We live near the sea for trade and access to fisheries. To rivers for transportation. People move to where there is lumber to harvest, gold to mine, buffalo to hunt, food to grow, iron to process, etc. We build roads and canals and ports to connect resource reservoirs to consumers. And when a resource runs out we move on and find another. And when that runs out people move on. Places associated with old used up resources simply fade away. Ghosts of the original economic energy that created them.

In Nova Scotia, where I've been on vacation, a common pattern was for England and France to fight each other over land and resources. Great fortunes were made on cod. Then that was all fished out then it was halibut. Salmon was fished out. Then lobster. Now scallops. What once trash fish, like red fish, is now the next big thing because that's what's left.

During these cycles great fortunes were made, people moved in, and then had to move away. What is mined now as a resource is often the history of the people and places that was created in the process of exploiting other resources. We call it tourism.

Data is such a resource reservoir, but it's not being treated like one. It's as if forts and cities and boats and fishermen all congregated to catch cod, but then didn't sell it. If that were the case limited wealth would have been generated, but because all these goods went to market as part of a vast value chain, great wealth was generated for some and a living was made by many others.

If we can see data as a resource, as natural resources run out, we'll be able to switch to unnatural resources to continue the great cycle of resource exploitation?

I don't know. It's just a thought.

July 2, 2014 | Registered CommenterTodd Hoff

Russell, you got it.

And why do people spend so much energy on titles? All titles suck. They are like code in that.

The bit about sex is that sex is nature's way of bring different data sets together, that is our genome, and creating something new that has a chance to survive and thrive in changing environments.

Data needs the ability to combine with other data in new ways to be valuable. So data needs to have the equivalent of sex. Simple?

July 2, 2014 | Registered CommenterTodd Hoff

Chad, agreed, that's a hard problem, no doubt. And yes, joint ownership means some sort of mechanism for mutual control. What would that look like? A great question :-)

July 2, 2014 | Registered CommenterTodd Hoff

Todd,

I guess I see a conflict between your statement that "Privacy is dead" followed by "Data must be freely traded." Privacy is dead precisely in a way that makes it impossible to freely trade. It seems to me that free trade requires property rights, and privacy seems like a data analog of a property rights.

I find it difficult to reconcile the two, because with the mapping that I have above, the question I am left with is how does one engage in free trade without existing property rights?

July 3, 2014 | Unregistered CommenterTristan Slominski

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