The market inefficiency sustaining Big Tech

The user data arbitrage and the right regulatory remedy

Anthony Bardaro
May 20, 2017 · 4 min read

Awesome piece Jason. Curious about three things…

  1. What’s your problem with Facebook having your personal data? There are a lot of reasons people wouldn’t want that, I’m just curious about your own, personal concerns. Sounds like you have an issue with either all of your personal data getting concentrated on one platform or having information about you preserved online rather than being undetectable offline. Regardless, is your ultimate concern:
    a) getting hacked/identity theft; and/or
    b) authoritarian monitoring?

I’m in no way trying to debate or provoke you, I’m just trying to understand more about your concerns and your individual opportunity costs, because there are appreciable net benefits of the digital economy, which can be preserved if given the right set of prescriptions for privacy risks…

Personally, I’m happy to sing the praises of the digital economy — and reap the benefits — but I know it’s easy to whistle-past-the-graveyard if you haven’t suffered the consequences of a hack, identity theft, or loss of personal liberty.

Whether social or software, the space is getting more competitive and more crowded, but the first movers — today’s giants of the digital economy — still enjoy the massive profit margins that have [imprecisely] become synonymous with “Tech.”

Massive profit margins are incontrovertibly a sign of market inefficiency. I hope exogenous interventions (like antitrust breakups) are not the fate of these business, but something will compress those wide profit margins. These tech giants happen to be the ones who have successfully aggregated all of our user data, and accordingly, the following prescriptions are a more reasonable tact. The absence* of these requirements have perpetuated the market inefficiency responsible for Big Tech’s unassailable profitability…

  1. Encryption and anonymization should be compulsory by law (ex ante): This isn’t as much of a tangible expense as it is an opportunity cost for Big Tech, whose revenue streams from data sales to/sharing with 3rd parties will suffer as a consequence of this requirement. It’s fine for each company to build personal user profiles for in-house use, because that enables them to better serve consumers with applications like digital assistants, for example. But, any data that’s shared with a 3rd party should be scrubbed. If you’re still concerned with in-house data getting hacked, that leads me to my second point…

If implemented, these two solutions will preserve the consumer surplus so brilliantly provided by Big Tech: Apps will still be free; the web will still be open; etc. However, these prescriptions will also hedge the event risks that are the nasty underbelly of Web 2.0’s digital economy.

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*Some commentators will say that both of these requirements are already enforced. Most preexisting standards are weak-form that need to be amplified. We can debate this at length at another time.

Anthony Bardaro

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