Privacy Paradox: Lessons for SMEs

• Marketing is emerging as a data-driven, algorithmic exercise and as we say, more of a science than art. Rather than relying on just one stream of data, firms are relying on disparate data sources.
• The collection of this huge data exposes individuals & organisations to concerns of privacy. These privacy concerns impact small and medium enterprises differently than their larger counterparts.
• Further, governments and policy makers are increasingly pressing for regulations regarding privacy and data usage.
• To deal with this, SMEs can solve this ‘Privacy Paradox’ by designing unique and innovative products, competitive advertising and building transparency.

Marketing is emerging as a data-driven, algorithmic exercise and as we say, more of a science than art. These benefits of collecting, analyzing and storing cheap data has led to the use of data across many areas of marketing. Whenever we think about privacy, an individual’s brush with privacy is restricted to the assent page that pops up at the time of downloading or upgrading an app. We propose that there’s more to privacy than the consent forms. Further, these privacy concerns impact small and medium enterprises differently than their larger counterparts.

First, Data Fusion: Rather than relying on just one stream of data, firms are relying on disparate data sources (website activity data, mobile phone based location data, actual purchase data etc.). All these data sources are fused and analyzed together. This can lead to grave privacy concerns. For example, research has documented that publicly available data can be used to predict social security numbers and publicly available Facebook profile pictures can be used to predict one’s sexual orientation.

Therefore, on one hand, data fusion can be advantageous to firms in terms of gaining consumer insights not possible before and at the same time, pose significant privacy threat if not handled properly. SMEs (Small and Medium Enterprises) can be at a disadvantage here as data driven marketing is an algorithm driven function and privacy sensitive algorithms require trained and expert data scientists to aid marketers – a privilege not necessarily available for resource constrained small and medium businesses.

Second, Regulatory Frameworks: Governments and policy makers are increasingly pressing for regulations regarding privacy and data usage. Though, tech giants (Facebook, Google and Amazon) remain in the news and face intense media scrutiny, still, we can’t deny the fact that SMEs are at a disadvantageous position than the tech-giants. For example, European Union Parliament has backed a call for tighter regulations on behavioral ads in
favor of less intrusive, contextual forms of advertising. If implemented, these regulations will definitely impact the business models of Facebook, Google but one shouldn’t forget that these giants are better equipped than SMEs to handle the challenge. Big firms are at an advantage as they have invested heavily in building sophisticated algorithms (e.g. transfer learning) that work on less data but are highly predictive of consumer behavior.

The most recent regulatory framework is ’General Data Protection Regulation’ in May, 2018. First, GDPR encompasses any information that directly or indirectly relates to an identified or identifiable natural person (e.g. IP addresses) as personal data. Further, GDPR requires firms to obtain consent for the usage of their data through simplified forms and any infringement will attract significant monetary penalty. GDPR’s influence on data will have an impact on targeted advertising, personalized recommendations and use of consumer data. Also, India’s equivalent of GDPR – Personal Data Protection Act(PDPA) is set to become legislation soon.

 

Third, Ivory Towers: Large firms can respond to privacy concerns by building closed ecosystems, controlled by a single operator. For example, Apple nudges users to access apps from the Apple store, that hosts apps curated by Apple. Further, Apple has introduced tracking block on Safari (Apple’s own internet browser) limiting ad agencies’ ability to collect consumer data. Google went a step ahead and decided not to provide log-level user data to marketers, therefore, limiting their ability to leverage this data to power their own apps, independent from Google. Rather, firms have to rely on ad exposure data from Google’s in-house Data Hub that further connects to Google’s own attribution, analytics and data management solution. This can protect privacy but also strengthens the monopoly power of tech-giants like Google and Facebook.

Though all these factors favor large incumbent firms, there are ways in which SMEs can bounce back and solve this Privacy Paradox.

1. Designing unique and innovative products:

Search engine, DuckDuckGo, distinguishes itself from other search engines by not collecting or sharing its users’
personal information and shows each user the same results for a given query, as if this is user’s first visit to the search engine. This is the unique proposition offered by DuckDuckGo. Similarly, open source web-browser Brave is targeted towards privacy-conscious users. Brave’s users can leverage private tabs with Tor – a novel feature that lets a user browse internet anonymously through the Tor network8.

2. Competitive advertising:

Microsoft has accused Google of misusing consumer information in its advertising campaigns and small firms can promote their privacy-preserving nature as a way to differentiate them from the giants. Though one must be cautious about outright vile attack, especially during these tough times – i.e. learn from the Microsoft’s Scroogled 9 campaign against Google.

3. Privacy versus Accuracy:

If firms are forced to account for privacy (and therefore, leverage less accurate) AI-algorithms, this can lead to biased and unfair decisions. This can act as leveler for small firms, as their resource constraints force them to opt
for less accurate algorithms for their business decisions.

4. Transparency and Trust:

Research has proven that consumers are more likely to share their data with firms that they can trust and provide a stable consumer experience. Smaller firms should focus on providing a trust worthy experience and gain consumer trust as well as their data. We believe that privacy paradox favors large firms but small and medium enterprises are at advantage if they look at privacy regulations as an opportunity and take deft actions.

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Anuj Kapoor is an Assistant Professor (Marketing) at IIM-Ahmedabad. His research interests include computational social science, marketing analytics, platform design, machine learning algorithms, and causal inference. His research brings together theory from psychology and economics, statistical tools and granular consumer data to better understand consumer decision making and to improve the strategic marketing decisions of firms. He has worked closely with Indian startups to suggest them more ways to become data-driven.

Prof Kapoor has written this piece with Pankaj Kumar. Pankaj Kumar is a security-enthusiast and a Staff Software Engineer at Pulse Secure LLC, San Jose. His research interests include System Security, Zero Trust, IoT.