The Struggle to Connect
This is one of a series of blogs exploring Hidden in Plain Sight: The Surprising Economics of Personal Data, the subject of Mydex CIC’s latest White Paper.
In recent years, the issue of free markets has been a key source of political and economic division. On the one hand, true believers have insisted that free markets are a cure for all economic diseases, while sceptics have insisted they are not. The two sides have been clashing over this question for decades. Yet strangely, neither side has ever stopped to ask another, related, question: “what are the costs of operating in a market?”
Markets may (or may not be) an almost magical guarantee of economic efficiency. But how efficient are markets themselves? Do they always operate as efficiently as they could?
The answer may surprise you. The way markets work in today’s world is extremely inefficient. They cost a huge amount to run. Indeed, sometimes their costs of operation are so cripplingly high that they don’t operate at all.
The reasons for these immense inefficiencies take us back to the core drivers of data’s value — reliability and surprise. Or in this case, the lack of reliable, surprising data, which means the system has to operate using guesswork instead.
Inefficiency in markets
Take a typical seller. To sell their product efficiently and effectively they have to know exactly what buyers want to buy, who wants to buy it, and how to reach and engage them. The other side of the coin is the typical buyer. To access what they want or need they need to know what’s available out there, where to get it from, and how.
But in modern markets, nobody has reliable information on these things, and the result is layer upon layer of extra cost. Guesswork creates risk and waste — investing money, time and effort doing things that don’t work.
Because sellers don’t know who may be interested in buying their products, and because buyers may not be aware of these products, sellers often invest huge sums in advertising. But traditional broadcast advertising (e.g. TV, print, etc) is hugely wasteful. Advertisers spend £$€billions advertising to people who are not interested in what they are selling and who will never buy.
In recent years, to reduce these eye-watering levels of waste, marketers have fallen in love with ‘targeting’ — trying to gather ever more information about who might want to buy their stuff. But, it turns out, efficient targeting is very complex and difficult, depending on a huge range of things such as personal preferences and current context, mood, mode and priorities. Stuff that the advertiser doesn’t know.
So what do advertisers seek to do? The obvious way, which is to gather ever more information. The result? Advertising platforms like Facebook and Google that have become huge ‘surveillance capitalism’ engines that seek to know everything there is to know about people, at massive cost, with toxic levels of privacy invasion … while still failing miserably.
Buyers, meanwhile, are faced with a constant tidal wave of messaging, most of which is irrelevant, and most of which people don’t trust anyway. Sellers waste huge amounts of time, money and effort generating a tidal wave of noise, and buyers waste equally huge amounts of time, money and effort trying to navigate their way through this noise.
By the way, this applies just as much to public services, charities and other non-profit service providers as it does to the private sector. For example: If a local council wants to offer free childcare to families wrestling with poverty, they have to identify who is in need and how best to reach them and engage them. Meanwhile, families wrestling with poverty may not know what help is available, where to get it or how.
The entire system, then, is awash with waste: waste created by people making the wrong guesses; investing additional time, money and effort in trying to find a way to improve their guesses; in making mistakes anyway and in failing to reach their objective. Or (very often) not even trying, given the spectacular levels of cost and waste involved.
This is not a trivial problem!
You might think that in the context of everything else that’s going on in the economy, these costs are still relatively small. Well, think again.
Advertising itself accounts for less than 2% of modern economies. But the McKinsey Institute has estimated that 50% of all economic activity now revolves around ‘interaction costs’, defined as “the searching, coordinating and monitoring that people and firms do when they exchange goods, services or ideas” (an estimate that excludes the costs of ‘non-interactive’ information processing). Similarly, economists John Wallis and Douglass North estimate that 45% of all US economic activity is now absorbed by ‘transaction costs’, defined similarly to McKinsey’s interaction costs.
In other words we’re talking about a situation where a half of all economic activities are NOT devoted to actually producing value. Instead, they are devoted to finding ways to realise the value that has been produced. This is an astonishingly high burden that’s without precedent.
A hundred years ago, 75% of all economic costs were devoted to ‘making’ with just 25% devoted to matching and connecting. Then, thanks to a productivity revolution in making (such as the breakthroughs made possible by mass production moving assembly lines) processes for ‘making’ became much more efficient while processes for matching and connecting lagged behind, becoming ever more complex. That’s why, today, the relative costs of ‘making’ versus ‘matching and connecting’ have shifted to today’s 50/50 split.
A simple solution
Just imagine the economic benefits that would flow if we could take the balance between ‘making’ and ‘matching and connecting’ back to the 75/25 ratio that it once was!
All of this waste — and all the opportunities that are missed because of the excessive costs and barriers generated by how the system works — all boil down to one thing: poor data logistics. The inability to get the right information to and from the right people at the right times.
Over the past decade, the big digital platforms, including Facebook and Google in marketing and advertising, Amazon, Uber, AirBnb and elsewhere, looked like they might be able to help. All of them grew rich and powerful thanks to their ability to reduce buyers’ and sellers’ matching and connecting costs. But over the years their promise has faded so that they are now just as much a part of the problem as the solution: a new source of cost and complexity and a new barrier to competition made worse by the multiple toxic unethical practices of surveillance capitalism.
The strange thing is that empowering individuals with their own data via their own personal stores can break the logjam. How? By helping to get the data logistics right.
Here is how it’s done — in a safe, ethical and efficient way. The personal data store operator enables individuals to publish anonymised profiles of themselves so that service providers can search these profiles for the characteristics of the people that best fit what they have to offer. They could even publish their needs and requirements this way.
Services can use the platform to reach out to these individuals, who at this stage remain anonymous, so their data and identity is protected. Individuals only respond if they want to, and if they don’t the service gathers zero data about them. The individual can create specific profiles for specific aspects of their life, further protecting their privacy and ensuring tight focus on their needs and interests.
Meanwhile, individuals don’t have to go searching. The right offers come to them, and they only respond when they want to, only sharing data and engaging when they want, under their control.
Both sides send and receive the right, reliable new information as and when it is needed — and all the layers of waste generated by a system founded on guesswork begin to fade away. It’s a truly seismic shift which Mydex CIC is helping to deliver right now with a pioneering new service in Scotland.
This service is helping the Scottish Government to reach out to people it wants to involve in the co-design of the services they use. As an application of the principle it is highly specific. But the capabilities Mydex has developed have almost universal applicability — tackling a root cause of immense waste across all go-to-market activities.
Conclusion
This blog series has now identified three, huge productivity and quality breakthroughs made possible by personal information empowerment: inside the day-to-day operations of every activity that uses personal data to provide services to individuals; filling the gaps between these activities to enable properly ‘joined up’ services, and now, transforming processes for ‘matching and connecting’.
These three breakthroughs — each one transforming a vast swathe of economic activities that affect every citizen and every citizen-serving service — lie at the heart of the surprising economics of personal data. Yet in another sense, they are only the beginning. Indeed, there are ways in which what we have described so far only touches the surface. Next step: seeing the ‘dark matter’ that current ways of doing economics simply do not reach.
Other blogs in this series are:
- The Great Data Delusion 19th century doctors thought bloodletting would cure most diseases. Today’s prevailing theories of personal data are little better.
- Why is personal data so valuable? Because of two things nobody is talking about: reliability and surprise
- Is it a bird? Is it a plane? No! It’s Super…! With personal data, what sort of a problem are we dealing with?
- The vital issue people don’t want to talk about Productivity is key to prosperity. But nobody wants to talk about it? Why?
- When organisations become waste factories The single design flaw at the heart of our economic system, and what happens if we can fix it.
- Why are joined-up services to difficult to deliver? Because the organisation-centric database is designed NOT to share data.
