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In a free market, when companies fight over customers, it’s the customers who should win.

Will that happen here?

The Apple-Facebook fight over user privacy heated up last week, with Facebook taking out full-page advertisements in the New York Times, Wall Street Journal and Washington Post.

The ads proclaimed that Facebook was “standing up to Apple for small businesses everywhere.”

These ads involve a double irony. First, the world’s leading online social-media platform has placed ads in newspapers. Second, Facebook claims to be standing up for the little guy. This is the same company that faces a Federal Trade Commission lawsuit, as well as lawsuits from 48 state attorneys general, for unlawful, anti-competitive conduct that includes crushing or forcing the buyout of any small businesses that threaten Facebook’s hegemony.

Casablanca
Casablanca, poster, Peter Lorre, Humphrey Bogart, 1942. (Photo by LMPC via Getty Images)LMPC VIA GETTY IMAGES

Like Rick Blaine at the beginning of the movie, Casablanca, Facebook sticks its neck out for nobody.

But Apple is no saintly Victor Laszlo. While, in this case, it’s selling a pro-privacy feature, in other areas, Apple itself faces accusations of sharp dealing or unlawful practices.

Opt In Vs Opt Out (Supposedly)

The Apple-Facebook fight centers on Apple’s going live with an App Tracking Transparency feature of Apple’s iOS14 operating system. This feature curbs the ability of publishers like Facebook to gather data about users in order to send them targeted advertising.

A user can permit data gathering, but they will have to opt in, or affirmatively consent. Otherwise, App Tracking Transparency will block targeted data gathering.

This flips the typical U.S. background rule of opt out.

Under opt out, data gathering happens unless the user affirmatively declines. Facebook ostensibly provides an opt-out mechanism. But, many users might not know the extent to which Facebook tracks their online activities and physical movements, even when logged out.

Also, can we trust that Facebook opt out actually works? Given the company’s privacy track record, one may wonder.

Follow The Money, And The Lawsuits

What Facebook and other social-media and online-tech companies are selling is: you. Your data. Your tastes, preferences, opinions, and relationships. Even your movements.

Huge amounts of money are at stake. Facebook itself estimates a 60-percent swing in advertising effectiveness between targeting and non-targeted advertisements.

Facebook’s ad charges will presumably match its ad-placement effectiveness. With the company controlling about 25% of a $40 billion online U.S. advertising market, up to $6 billion in annual revenue are at stake in the U.S. alone.

Opt out has a particularly harsh effect on publishers subject to the law of jurisdictions like California. California law prohibits businesses from discriminating against consumers who exercise their opt-out and other rights.

So, a customer who opts out is 60% less valuable than a regular customer, but may not be discriminated against. How can that possibly work in practice?

California continues to grapple with this question. Current regulations hold that differences in treatment must be reasonably related to the value of the consumer’s data to the business, with notice the consumer.

This rule raises yet more questions, as well as prospects for mass litigation.

It’s debatable whether California law does a better job of protecting consumer privacy, or enriching lawyers.

The Ethics of Establishing the Ethics — A Night-Club Analogy

In new or fast-changing areas, we face the ethics of establishing the ethics.

How issues are framed go a long way towards how they are decided. Who wins the early battle over framing stands to win the war.

Finding the right analogy helps.

People dancing in a nightclub
Night ClubGETTY

Think about night clubs. They have various ways of making money from customers: cover charges, drink minimums, table charges or requirements that customers seated at a table buy a bottle of spirits or champagne, etc. The more money you generate for the club, the better you’re treated.

Facebook’s current revenue model operates like Ladies Night. On Ladies Night, clubs let women in for free expecting that they will attract men who will pay a cover, as well as spend money on the women and on themselves.

Facebook provides users with free services in the hope that advertisers will spend money on them. Facebook’s like the owner-bartender who, for ten bucks, will tell you everything he knows about a particular woman, including her relationship status and favorite drink.

Taking Consumer Privacy Choice Seriously Means Letting Publishers Experiment With Revenue Models

Most people, and most regulatory regimes, treat the personal data of a consumer generated from his or her online activity as belonging to that consumer.

If we’re serious about consumer choice, people should be able to use App Tracking Transparency and similar technologies that provide opt-in-style privacy. Data gathering has infiltrated our off-line and online doings in ways consumers do not expect and cannot fathom. Some consumers might not even know opt out is possible.

Moreover, opting out app by app, and website by website, has become impractically cumbersome.

At the same time, publishers should be able to alter their revenue models in light of consumer choices without fear of massive lawsuits. Neither California nor other jurisdictions should make publishers innovate with one arm tied behind their backs.

Headshot of Dimitri Vaynblat
Dimitri Vaynblat, Principal, SteppeChangeSTEPPECHANGE

According to Dimitri Vaynblat, a Principal with SteppeChange and former Chief Technology & Data Officer of RadiumOne, “Publishers (both web and app) are crossing into a brave new world with highly restricted consumer data collection. The content of many publishers has been tailored towards free consumption. In many cases, content quality is good enough for consumers to spend their time on but not their money.”

Consumers who implement App Tracking Transparency will effortlessly enjoy greater privacy. More power to them.

But they will also be worth 60% less to Facebook, other online publishers, and their advertisers. These companies should be able to segment customers based on value and to offer differentiated services. Otherwise, App Tracking Transparency users will free ride off of other consumers. That doesn’t seem right.

Differentiation happens across a range of retail, including night clubs. California and other jurisdictions need to make it both lawful and practicable.

Going For A Win-Win That Includes Consumers

Apple, Facebook, and other website and app publishers are fighting over customers. That’s the free market at work. Some will win, and some will lose.

As Vaynblat notes, “Creation of high-quality content consumers will pay for brings publishers’ costs up….The multi-billion-dollar question is which publishers will raise their game, and which will succumb to Darwinian pressure.”  

To ensure that consumers win as a group, we should let them choose their level of privacy as efficiently as possible, while not requiring publishers like Facebook to fight with one hand tied behind their backs.

[From my recent Forbes column, reprinted with permission]

#therightwaytowin

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