Chapter 3: Follow the Money

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Now that we’ve explored some of the creepy ways that companies gather your data, you might be wondering: but why do they do it??

It’s not because it’s fun to be creepy; it’s because it’s profitable.

Attention Merchants

Once upon a time, the Internet didn’t make any money. It wasn’t even allowed to!

In the 1960s and ’70s, the Internet was a US government-funded network available only to academics, scientists, and government agencies for non-commercial use. Long story short, in the ’80s and ’90s, as the financial potential for the Internet became clearer, the government dismantled their original network and made way for the privatized Internet that we know today. Lots of Internet Service Providers popped up and, theoretically, the average American could start using the Internet.

But the ‘Net of the early ’90s wasn’t very user-friendly. After all, it had been made by scientists and researchers for scientists and researchers. So, to be consumable by Joe Shmoe, it needed some tweaks. “In the early 1990s, there were perhaps dozens of credible efforts to come up with a design for presenting networked digital information in a way that would attract more popular use. Companies like General Magic and Xanadu developed alternative designs with fundamental different qualities that never got out the door. A single person, Tim Berners-Lee, came to invent the particular design of today’s web.”1

This design, called the World Wide Web, included infinite pages of multimedia content connected via hyperlinks. To help users navigate these pages, technologists also developed the first Internet browsers and search engines. 2Thanks to these changes, millions of Americans could finally make use of the Internet.

Here’s the thing: for centuries, companies have made money off of people’s attention. As Tim Wu writes in The Attention Merchants, advertising as we know it “can be traced to the nineteenth century, when in New York City the first newspapers fully dependent on advertising were created; and Paris, where a dazzling new kind of commercial art first seized the eyes of the person in the street.”3 Since then, newspapers, radio programs, telephone books, and TV shows have been chock full of ads.

The Internet — search engines in particular — was no different different. Taking the industry’s giant as an example: Google officially launched its advertising service Google Ad Words in 2000; by 2011, AdWords represented 96% of the company’s revenue, and by 2012, Google made $43.7 billion in revenue from AdWords alone.4

Now, thanks to advertising, search engines like Google make far more money than the pages that are carrying the actual content of the Internet… and certainly more that the individual people (artists, writers, etc.) who created that content! As Jaron Lanier laments in You Are Not A Gadget, search engines present “anonymized fragments of creativity as products that must have fallen from the sky or been dug up from the ground, obscuring the true sources. […] Aggregators, instead of creators, become the ones making the big money.”5

To sum up, due to (a) the commercialization of the Internet and (b) the monetization of our attention through online ads, the Internet has become a money-making machine.

Oil of the 21st Century

How does all of this relate to how companies gather user data?

Well, back in the day, advertisers couldn’t know exactly where to place their ads. They could make an educated guess — an ad for a dishwasher might perform better in Good Housekeeping than in the Wall Street Journal — but they wouldn’t know exactly who would see each ad and whether or not it would led to a purchase.

This all changed with the Internet. Now…

  • Through various methods, websites/data-management firms/advertisers gather first-party data (collected and stored by the original company)6 and third-party data (collected from various outside sources, like third-party cookies) about us. 7
  • Our data is processed to create user profiles, which identifies our interests and spending patterns. As more data about us comes in, our profiles are continually updated to be a more accurate representation of who we are and what ads might be successful with us.8
  • In the meantime, websites set aside space for banner ads at the top, bottom, and sides of their pages. Advertisers buy this space for various prices, depending on impressions (number of times the ad is seen), clicks (number of times the ad is clicked), and/or conversions (number of times the ad leads to a certain behavior, such as making a purchase).
  • Once the banner space is bought, advertisers refer to users’ profiles to decide exactly which ads to show them and when.
  • Once the ad is in front of users, websites/data-management firms/advertisers keep track of its impressions/clicks/conversions) to see how well the ad performed and to learn more about the users who saw it.
  • In general, more accurate user profiles tend to decrease the number of impressions (since an advertiser can afford to show fewer people each ad) and will increase clicks/conversions (since each person seeing the ad is algorithmically more likely to be interested in it).9

Essentially, advertisers no longer have to guess where, when, how, and to whom to show their ads. Our data holds all the answers. And that’s why data has been called the oil of the 21st century. Here are some of my favorite quotes on the topic:

“Personal data is the fuel of the economy. Consumers’ data is being traded and transacted for the purpose of advertising.”10

Data is the new oil, or so the saying goes. […T]he accumulation and scraping of data is worth billions of dollars — and even a money-losing company with enough data about its users can be worth well into the eight-figure region.”11

“[Data] might not be the sexiest aspect of marketing, but it is now the most important.”12

Data Wars

Given the financial potential of data, it’s no surprise that “data wars” — struggles for data dominance — have broken out. 13 Since the 1990s, tech companies have merged and acquired one another, sometimes for the sole purpose of combining hoards of data. Below are some of the big-name acquisitions, which give you taste of the value (million$ and billion$) of user data.

Google (Alphabet) acquisitions14
CompanyDateAmountIndustry
Picasa2004Image organizer
Android2005$50 million
Mobile operating system
YouTube2006$1.7 billionVideo sharing
DoubleClick2007$3.1 billionAdvertising
reCAPTCHA2009Cybersecurity
Zagat2011$151 million
Restaurants
Waze2013$966 millionMaps
Boston Dynamics2013Robots
Nest2014$3.2 billionHome automation
Dropcam2014$555 millionHome monitoring
Songza2014Music
Amazon acquisitions15
CompanyDateAmountIndustry
IMDb1998Film database
Alexa1999$300 millionData analytics
Audible2008$300 millionBooks
Zappos2009$1.2 billion
Shoe shopping
Kiva Systems2012$775 millionRobots
GoodReads2013$200 millionBooks
Twitch2014$1 billionGaming
Whole Foods2017$13.7 billionFood shopping
Souq2017$650 millionShopping
Facebook acquisitions16
CompanyDateAmountIndustry
Instagram2012$1 billionSocial media
Face.com2012$100 millionFacial recognition
Whatsapp2014$19 billionCommunication
Oculous VR2014$2 billion
Virtual reality
eBay acquisitions17
CompanyDateAmountIndustry
PayPal2002$1.5 billionPayments
Craigslist2004$13.5 millionClassified advertising
StubHub2007$310 millionEntertainment
Meetup2006$10 million
Social
Braintree2013$800 millionPayments
AOL acquisitions18
CompanyDateAmountIndustry
Netscape1998$4.2 billionWeb browser
Moviefone1999$525 millionFilm
Mapquest1999$1.1 billionMaps
TechCrunch2010News
Huffington Post2011$315 millionNews
Microsoft acquisitions19
CompanyDateAmountIndustry
Hotmail1997$500 millionEmail
Visio2000$1.4 billionSoftware
Skype2011$8.5 billionCommunication
Nokia2013$7.2 billionMobile phones
LinkedIn2016$26.2 billionSocial media
Data Hoarding

You could say that we’ve ended up with a “data-hoarding culture.”20 The more, the better. But how is it possible to store so much of it?

As it turns out, digital storage is cheap. Developer Maciej Ceglowski succinctly said, “Storage is cheap enough that we can keep everything.”21 Back in the day, CDs allowed for infinitely more storage space than standard physical filing. (Check out Bill Gates on the right.) Over time, data centers and cloud computing have made digital storage even easier and cheaper than that. Tech companies are sitting on hoards of data, with no practical limitations in sight.

In summary, it’s no mystery why companies gather user data. If you follow the money, you can see that fortunes have been made (both through advertising and acquisitions) thanks to the collection of our data.

But… but… this is our personal information we’re talking about! These are our digital dossiers, full of private correspondence and content! How is all of this legal? That brings us to Chapter 4: Legalities.

 

Header image by TBD from Noun Project.

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References:

  1. Jaron Lanier. You Are Not A Gadget: A Manifesto. Vintage. 2011. Web. Accessed on 11/16/17.
  2. History of the Internet.” Section: “World Wide Web and introduction of browsers.” Wikipedia. Web. Accessed on 12/27/17.
  3. Tim Wu. The Attention MerchantsKnopf. (2016). Page 5.
  4. Adwords.” Wikipedia. Web. Accessed on 1/5/18.
  5. Jaron Lanier. You Are Not A Gadget: A Manifesto. Vintage. 2011. Web. Accessed on 11/16/17.
  6. Advertising Age staff. “What Exactly Is First-Party Data?AdAge. December 3, 2011. Web. Accessed on 1/5/18.
  7. Advertising Age staff. “Defining Third-Party Data.” AdAge. January 28, 2014. Web. Accessed on 1/5/18.
  8. John Cheney-Lippold, We Are Data: Algorithms and The Making of Our Digital Selves. New York University Press. 2017 (31).
  9. Alex Hillman. Interview by Lydia Martin. Personal interview online on Slack. January 2, 2018.
  10. Judith Duportail. “I asked Tinder for my data. It sent me 800 pages of my deepest, darkest secrets.” The Guardian. September 26, 2017. Web. Accessed on 1/5/18.
  11. Luke Dormehl. “If data is the new oil, are tech companies robbing us blind?Digital Trends. September 25, 2017. Web. Accessed on 1/5/18.
  12. Jeff Rosenblum. “Campaigns are Dead. Modern Marketing is a Data Exchange.AdAge. July 12, 2016. Web. Accessed on 1/5/18.
  13. John Cheney-Lippold, We Are Data: Algorithms and The Making of Our Digital Selves. New York University Press. 2017 (20-21).
  14. List of mergers and acquisitions by Alphabet.Wikipedia. Web. Accessed on 1/3/18.
  15. List of mergers and acquisitions by Amazon.Wikipedia. Web. Accessed on 1/3/18.
  16. List of mergers and acquisitions by Facebook.Wikipedia. Web. Accessed on 1/3/18.
  17. List of acquisitions by eBay.” Wikipedia. Web. Accessed on 1/3/18.
  18. List of acquisitions by AOL.” Wikipedia. Web. Accessed on 1/3/18.
  19. List of mergers and acquisitions by Microsoft.Wikipedia. Web. Accessed on 1/3/18.
  20. Steven Dong. “Why ‘Dark Data’ is the Key to Better Serving Customers.” AdAge. August 01, 2017. Web. Accessed on 1/8/18.
  21. John Cheney-Lippold, We Are Data: Algorithms and The Making of Our Digital Selves. New York University Press. 2017 (4).