Making Privacy Profitable: Monetizing the tech giant backlash

Making Privacy Profitable: Monetizing the tech giant backlash

Summary

September 2019 saw Google pay $170m to settle a case with the Federal Trade Commission, after another revelation about the extent of its data-gathering. Such revelations have brought the programmatic marketing model behind the success of Google, Facebook and others under intense scrutiny, with regulatory pressure, heavy fines and consumer revolts. There are companies offering many of the same products and services as the so-called ‘tech giants’, but with different business models that emphasize data privacy. The ways in which these companies have monetized their services, and even become profitable, are key to evaluating the alternatives to the tech giant monopoly. It could be just a matter of time before mounting privacy scandals enable one of more of these underdog companies to cause major market disruption.

Key Highlights

• The data-sharing programmatic marketing model behind the success of Google and Facebook has also been behind some of their most costly failures in recent years. From bad PR weeks to Europe-wide regulations and even billion-dollar fines, the practice of monitoring consumer behavior through free and indispensable web services has come under peak levels of scrutiny since Facebook’s Cambridge Analytica scandal in early 2018. September 2019 saw Google pay $170m to settle a case with the Federal Trade Commission (FTC) in the US, after another revelation about its business practices. It was revealed that YouTube, a Google subsidiary, had gathered data on children’s online viewing habits without parental consent. In Europe, Google has also fallen foul of the 2016 General Data Protection Regulation (GDPR) for its use of users’ data, paying a fine of around $57m. These data privacy fines have all come on top of significantly worse penalties (in the billions) from antitrust commissions and others. Google is yet to match Facebook’s $5bn fine from the FTC as a result of the Cambridge Analytica scandal, where data was shown to have been used illegally in political campaigns.
• In the search engine market, DuckDuckGo has been a competitor since 2008, and has been profitable since 2014. It currently sees an average of 45 million searches a day without collecting any data that is traceable to its users. Instead of gathering data across the entirety of a user’s search experience, using this to retarget ads wherever they go online, DuckDuckGo employs a more basic form of contextual advertising. On this model, users only see ads which are triggered by keywords in their searches or the websites they visit. This way, ads are targeted based on the users’ activity in that moment, and not across their browsing history, meaning that data is not stored. Advertising through the search engine only takes the form of sponsored links, whereby third parties can pay DuckDuckGo for a link to their product that appears under relevant searches. This is the small but crucial differentiator between DuckDuckGo and Google. DuckDuckGo also makes money as part of the affiliate programs of eCommerce sites like Amazon and eBay. Through these programs, the search engine is paid a commission when a search for a partner eCommerce site leads to a purchase on that site.
• Technically a non-profit, Mozilla still makes serious money for funneling into its online privacy ventures - around $24m in 2017. Its primary income is through its hosting of search engines on its Firefox web browser, which anonymizes users’ activity and uses a suite of tools to prevent tracking and Google-style targeted ads. It also deploys a similar contextual advertising model as DuckDuckGo through Firefox, which has become by most estimates the second-most popular browser on the market. Considering its indie status, it stacks up very impressively against competitors Safari and Edge, both of which have tech giant brands behind them. Again like DuckDuckGo, it generates revenue through links to affiliated sites, further demonstrating the viability of this model. Firefox said in its 2017 annual report that it would seek to offer premium features on top of its basic free offering when it has attained “deep engagement” with users. Whilst its market share has been falling in the face of Google Chrome, the browsing market leader by a significant distance, the Mozilla Corporation made $542m from “royalties, subscriptions and advertising revenue” in 2017, compared to $506m the previous year. The company’s total assets grew by over $100m.

Scope

• Examines the nature of the backlash against companies that monetize consumer data
• Looks at new and emerging companies that promise increases privacy
• Considers the tech industry in general and its routes forward
• Explores the potential of companies capitalizing on customer privacy concerns

Reasons to buy

• What are the major firms involved in privacy backlashes ?
• What firms are emerging as competitors?
• How strong is this competition?
• Just what chances have disruptors got of growing to become tech giants themselves?
• How concerned are consumers about privacy?