I see a lot of Root Markets-like businesses. Companies creating a way for people to own their own data and profit from it rather than letting someone else profit from it. The idea is appealing: other people are selling your data, it’s your data, why shouldn’t you sell it yourself?
But most of the people I talk to don’t have a good answer to the basic business question: can you sell your product or service for more than it costs you to buy or make it? In this case, can you sell personal data for more than it costs to garner it?
Well, can you?
The IAB says that in 2011 there was $31.74 billion in US interactive ad spend [pdf]. There were 245.2 million internet users in the US in 2011 according to Statista.com, using data from Nielsen and the ITU. That works out to slightly less than $130 in ad spend per internet user per year in the US.
Here is a breakdown of this per capita number, by channel, and a guess as to how much is potentially available for third party data sellers:
|Display / Banner||22%||$28.48||$7.12|
The $130 needs to pay for several different functions. The $28 for display, for instance, pays for account management, creative, media planning, targeting, media buying, ad serving, analytics, verification, and–not least–the actual inventory the ad is placed in. I’m guessing that the maximum amount available to a company selling data to target display ads is 25% of the ad revenue*. The opportunity to use data to optimize lead gen is potentially larger, while the opportunity in sponsorship, classifieds and search is pretty much nil**.
If this is right, and given the fuzziness of the IAB numbers, it means that there is maybe $1.00 to $1.50 per person’s data per month available to data sellers.
But keep in mind that Google does not need your data. Nor does Facebook. They are a large part of the market. Your data is competing with everyone else’s data–first, second, and third-party data–for this $1 per month. And some of the data you are competing with is so closely tied to the awareness generating process that it can’t be pried away and placed in a ‘wallet’ somewhere.
Take context. The context of an ad can account for somewhere between 50% and 90% of its effectiveness. Context correlates to demographics, purchase intent, state of mind, and behavior. If you are looking at a review of the new Mac Book Pro I don’t need any personal information to make an educated guess that you are in the market for a new computer. I can confidently put a computer ad next to that article without any other data, and the only way someone else can intermediate my guess is by blocking the content or ad entirely. Same argument different data for Facebook, and for much mobile usage.
This means that of the $1 per month much less is actually available to you as a collector of the data.
The original Root business model was to allow users to own their data and rent it out to people who wanted to market to them. The problem: users think their data is worth far more than $1 per month. But $1 per month is all that is available, on average. To a single company, it’s maybe $0.10 at best. And then there has to be a commission paid to the new intermediary–the Root-like company. The user ends up with maybe a dollar a year. Nobody cares about a dollar a year. There’s no business model. I could even imagine a world where each user was worth $0.20 a month, but that price is still nowhere near where it has to be to have users take it seriously.
There is a business model for businesses that gather data very efficiently. There are several pretty large companies that do this. But they have figured out a way to gather the data for much less than $0.10 per person and to collect data on hundreds of millions of people. The Root model simply costs more per person than the data is worth.
I spent several years of my life trying to build a business that lets people take control of their own data while still leaving a way for marketers to find them. I believe in privacy. And I believe that marketers finding customers is key to economic efficiency. I would love to see someone square this circle, but the Root model is not the way to do it.
* This takes into account the fact that I think the IAB/PwC revenue number is the amount paid to publishers, not the amount spent by marketers. The amount spent by marketers may be 50% to 100% more than that paid to publishers on average. Hard to know. This is an important point though: marketing is much, much more than advertising. The amount that companies spend on marketing in total is far higher than the amount that publishers make from selling ads. There are companies selling data that sell into this marketing market that are worth billions, they are not the focus of this post.
** The best businesses are the ones where everyone else thinks you’re wrong. My saying there’s no opportunity means that if you have a way to use data to optimize these channels, you may have an opportunity that no one else has seen. I like those.