The Value Exchange of the Digital Age | Part 4

The Changing Terms of the Value Exchange

By Anna Jacobson, Hanna Rocks, and Jay Venkata

For the first century of the United States’ history, formalized consumer protection did not exist; caveat emptor — “let the buyer beware” — was the operative principle of the marketplace. However, as the US economy became more established and prosperous, consumer protection slowly became enacted through the legal system, starting with the antitrust and anti-monopoly laws passed at the turn of the 20th century, which for the first time protected consumers from victimization from unethical pricing, exploitation of markets, and violation of constitutionality. In 1962, President John F. Kennedy spoke to Congress about the need for a new consumer protection movement, a call to action that resulted in the Consumer Bill of Rights. By the 1980s, these laws and many others passed with the goal of consumer protection had established a set of norms for the relationship between businesses and consumers that was widely understood by both groups of stakeholders.

However, the meteoric rise of the internet and the markets that it has created have in some ways returned us to the days of caveat emptor. The digital economy has fundamentally changed the nature of the commercial value exchange. No longer a one-for-one trade of money for goods or services, the new value exchange has at least three types of currency — money, data, and insights derived from data — and the consumer and the customer are often no longer the same entity. The norms that governed 20th-century commercial transactions often no longer apply, either due to lack of regulation or because of structural changes in the model they had been intended to fit. Businesses have wide latitude to define their own conditions to suit their best interests. Consumers often must not only fend for themselves with respect to veracity and quality, but they also are substantially responsible for the most fundamental step in the process — identifying the terms of the exchange.

As a society, the question we must ask ourselves is whether we are now poised to repeat the previous century’s rise of consumer protection, this time in an online instead of a physical setting — or are we entering a time in which an entirely new approach to consumer protection will emerge? We believe it is the latter.

A 21st-century approach to consumer protection must take into consideration the new, interconnected ecosystem of data collection, storage, aggregation, transfer, and sale. It must allow for the borderlessness of the world wide web and the complexities of the global economy. It must be able to adapt and respond to the break-neck pace of technological innovation and change. It must formalize the mechanisms of transparency, security, and choice. It must foster trust between businesses and consumers — but also provide means of verification.

Recommendations to Business

As consumers expect more free apps and services, businesses are responding by introducing third parties to the classic value exchange between customer and business. In many cases, this significantly impacts the consumer’s knowledge of what is happening behind the scenes to make the company successful. Organizations that are getting into the business of personalization have vast amounts of personal information at their disposal. However, there is usually a very thin divide between intimate and invasive. These organizations should consider the following recommendations to earn and keep the trust of customers:

• Recognize the Value of Consumer Trust in sustainable, long-term business success. Consumer trust should be considered an asset, potentially more valuable than customer data since it is harder to generate and easy to lose. As we have seen with companies such as Target or Equifax, a single privacy breach can besmirch a well-established brand name for years. As more businesses rely on user information, establishing a foundation of trust with consumers will ensure customer retention and growth.
• Prioritize Information Security in the Company Strategy to build a culture around safe data practices. It is important for this culture to be ignited in the core of the organization — the front, middle, and back office all thinking about the impact of their role on customers. This becomes even more important as data engineering breaks down silos across different aspects of the organization and a single enterprise-wide view of all existing customer data is created, which becomes very powerful in the right and the wrong hands. Consumers need to know that businesses have made protecting personal data a top priority, and that they have plans and technology in place to do the job the right way.
• Appoint a Chief Customer Officer or Chief Privacy Officer who can serve as the voice of the customer within the organization. This person or office would serve as an advocate for customer rights, challenging aspects of the product or service in order to move closer to the fine balance between personalization and customized user experience. In addition, this office would prioritize the development of processes and systems to protect the security, privacy, or safety of users. A few questions that provide a guideline or strategy for the Chief Customer/ Privacy Office include:

1. Are we in control of all the customer data being collected and disseminated across our entire digital footprint?
2. Have we provided our user adequate controls over how their personal information is used?

• Include a Value Exchange Graphic in the Privacy Policy to explicitly call out the exchange of user information, payments, and services that are taking place between the three key stakeholders — the consumers, the organization, and third-party partners. Making this a standard feature within the organization’s policies could help a consumer to quickly comprehend the value he or she is getting and giving up, without having to read through lengthy legal jargon. This simple communication tool would demonstrate a genuine commitment to transparency that would starkly contrast with the hollow lip service given to the concept by competitors.

Further, if you are looking at the specific industries in our analysis, consider the following:

Social Media

As discussed earlier in this analysis, social media has both unique opportunities and unique challenges due to its lack of contextual integrity. It is a comparatively immature industry in which the rules of engagement are neither well-articulated nor well-understood, dominated by a tech-first, developer-is-king mindset. But as social media enters adulthood, it is time for its leaders to recognize that what began as a technical endeavor is now a fundamental societal tool. Social media’s problems do not have a technical solution — they require a societal solution. We believe that in the future, the social media company that masters the value exchange in a way that satisfies both its business and customer needs will be the one that decides to take a multidisciplinary approach, seeking the input of people who think systemically in frames other than tech (social economists, media scholars, data historians, tech ethicists, and the like) in order to assess its potential societal effects.

Hardware Devices

Businesses need to design solid privacy policies and best in class cybersecurity practices in order to protect both themselves as well as their users. Hardware devices have an increased risk of getting into the wrong hands since the device itself may store sensitive data on top of the company servers. As the trend indicates, there will be more mega-breaches and ransomware attacks in the coming years, especially targeting smaller firms since they don’t have the resources to invest as heavily as bigger cloud companies like Amazon and Google. Planning to deal with these threats to web-connected consumer devices and critical hardware infrastructure should be a top priority for security teams.

e-Commerce

Customers appreciate convenience with personalization — the less time they have to spend finding what they are looking for, the better. Use aggregated customer data to improve individual experience, but be explicit about how this is happening and set expectations at the outset. In the digital age, consumers are largely aware of the advantages that come with sharing some personal information but do not want to feel betrayed by the companies where they spend the most money.

Recommendations to Consumers

Our recommendations for consumers are the other side of the mirror: essentially, consumers who are concerned about their privacy should actively seek out products from companies who are operating their businesses in the ways described in our recommendations for companies. In addition, consumers should consider the following consumer best practices:

• Develop Your Own Personal Terms of Service. All privacy is not created equal, and all privacy harms are not equally harmful. Consider what is important to you personally to keep private. Do you want to keep everything in your life private on principle? (If so, the Internet may not be for you.) Are you most concerned about identity theft? Surveillance? Exposure of personal photos? Exposure of personal information? Knowing your priorities will help you to decide which company’s terms you should and should not agree to.
• Read the Privacy Policy. It might take 15 minutes when you want to give it less than 1, but it is worth your time to get informed if you truly want to protect your privacy. As detailed in our analysis, these policies vary greatly from company to company and can tell a consumer a lot about the company — not only from the text itself, but also in the context — how the information is presented — and in what is omitted.
• Understand the Value Exchange. What is actually on offer when you buy a product or sign up for a service? It’s not always immediately evident. Most companies do not make this information explicit to their users; it takes research and thought to understand. Nonetheless, it is the only way for a consumer to make an informed evaluation of whether they are getting a fair deal.

Conclusion

Our research, along with many others’, shows that the notice and consent framework that has been a central pillar of privacy practices for decades has been rendered obsolete by the internet. A responsible use framework, in which data collectors and users are held accountable for how they manage data and any harms it causes, is a more practical option for the future since it shifts the responsibility for protecting user privacy to those who have the power to do so. By doing this, privacy itself becomes part of the value exchange; in addition to products and services, businesses would provide an effective, actionable guarantee of privacy to their users in exchange for their patronage and their data. Businesses must recognize that they stand to benefit from this shift, as it can help to earn them the trust and loyalty of their users. Users must recognize that rather than succumbing to the perils of the privacy paradox, they can demand a different system. As President Barack Obama said upon the release of the Consumer Privacy Bill of Rights in 2012, “Even though we live in a world in which we share personal information more freely than in the past, we must reject the conclusion that privacy is an outmoded value…[W]e need it now more than ever.”

For more of this series, please follow the links below:

Part 1 | Defining the Terms of the Value Exchange
Part 2 | Privacy: The Business Perspective
Part 3 | Privacy: The Consumer Perspective