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Data is the new oil, we are told – except that it’s not found underneath difficult terrain in horrible places. It’s not in short supply, is not a limited natural resource and it’s not even concentrated in one place, rather it’s widely dispersed. To an economist, however, data is nothing like oil at all.
The comparison is coming instead from journalists who want it to mean that someone’s going to make a pile of money out of it – OK, that part is true. The interesting question, the one economists will go on to ask is, well, who?
A reasonable answer would be consumers – you and me using the online services that ask for our data in exchange who are making out like bandits. Given that the general economic view is that the point of having this construction called an economy is that consumers become better off, that rather wraps it all up. Nothing else need be done except perhaps keep an eye upon it.
This does rather conflict with a course of action being proposed by certain activists. If that data is valuable then surely we consumers should be paid for it? Those companies are getting data from us, for free – well, they provide some trivial service perhaps – and then they make a fortune from it. Where’s our cut of it, why isn’t Mark Zuckerberg beaming money into our bank accounts? The answer being that, looked at properly, he is, as are Sergey Brin and Larry Page and all the rest of them.
Who adds value to data?
One way to think of this is that our dispersed information isn’t worth very much. Your tastes or mine might be worth a few tens of cents to someone, somewhere. It’s having those tastes and locations of millions or billions of us, that allows useful information to be extracted from the base data.
A useful guide to something working well is that the people adding value are the people who gain the value added. Which, if the raw data is worth little and the processed information a lot, means that it should be the people transforming data into information who end up with the piles of cash. Which, largely, is what is being complained about, isn’t it? Yet the fact that the tech companies are getting the moolah, does mean that they, as they’re adding value, gain the value. Which is great, really.
We can and should go further than this though. For cash – or even GDP – is only one way of measuring value. Far more important is consumer surplus - that is, the difference between the price we pay, and the price we are willing to pay. This gets talked about rather less in economics because it’s very hard to measure. So, the response is generally rather, “mutter, mutter, let’s move onto something we can do sums with”.
Even with that difficulty sometimes it is done and done well. As well as can be, at least. A useful – another one – rule is that we shouldn’t look at what people say, instead note what they do. Totting up expressed preferences is nowhere near as valid a guide to what people really think than revealed preferences.
Plenty will say, for example, that taxes should be higher and yet last time I looked (in about 2005) an entire five people in the UK had voluntarily paid more taxes than were legally due. This result has been repeated over countries and time by other researchers – talk is cheap, actions speak louder.
So, while going and asking people what they value isn’t a perfect way of doing it, it is the best way we’ve got of measuring that consumer surplus. For the entire point of it is the value that people don’t have to pay for, therefore we can’t have a single and objective valuation of it. Fortunately new research is done the same way on both sides of this equation, making errors cancel themselves out.
What is the value of our data?
The question being asked is, what’s the value you place on this? That is being asked on two sides – what value do you place on the data you’re being asked for, and what value do you place on the services received back in return? Note that it’s two entirely different sets of researchers on either side, trying to answer different questions, but the results are directly comparable.
Brynolfsson et al asked people how much they would have to be paid to give up various “free” online services. Over a number of different research papers, people seem to value email and search engines at as much as $18,000 a year. Per user. Even Facebook is worth $800 per annum.
Yes, salt and shovels of it for the specific numbers but whatever mistakes and biases there are will also be there in this other research, which asks, how much do people think the data they must hand over in return is worth? That is, how much must they be paid for that data itself, without the service?
Conceptually we all understand this. If we get back something we value much more than what we’ve got to give up, then we’re gaining a bargain. Valuations are, after all, entirely personal – there are some out there who value Simon Cowell, for example.
So the one valuation that makes sense is what individuals apply to their own lives. If we, for example, thought that our labour was worth £7 an hour yet we were offered £60 an hour to go to work then we’d all be Stakhanovites. It’s the reverse pricing that leaves us disgruntled.
The finding is that we value the data we have to give up differently across genders and locations, but the sums are still small. From negative (some people actually like adverts) to perhaps $15 a month to get Germans to give up their banking transaction secrets (which is not the same as access to their bank accounts). That is, to gain these online services we are giving up something we value, tops, at maybe $180 a year and getting back $800 to perhaps $18,000 a year in what we regard as value in the form of services.
We consumers are making out like bandits. Which is, presumably, why such services have grown to such a large portion of the global population in such a short time. Add in things like Facebook and its clones in China where it’s not allowed to operate, and we have a majority of the global population using things which are at most two decades old. Because they’re one of the greatest bargains we’ve ever been offered.
As a comparison the usual rule of thumb is that the consumer surplus is about 100%. We get, on average across people and things, about twice the perceived value we actually have to pay for. Online is beating that handily.
Asking who gains from the value of data is an excellent question. The answer that it’s us, the original owners of it, is also excellent. So much so that there’s not really anything necessary to do about it. Why would we mess with something that’s making us all so much richer – whatever and however much other people are making from it too?