Shouldn’t there be a law to make internet companies pay us for all the data they collect when we surf their websites and use their apps? It’s one of those appealing-at-first ideas that is gaining traction in the media, academia, and politics — echoed most recently by Gov. Gavin Newsom, who called for a “data dividend” in his first State of the State address.
But the answer is no, there shouldn’t be any such law. It would upset the internet ecosystem, devastating business models based on advertising and likely putting an end to many of the free online services we take for granted today. It would also produce vanishingly small cash payouts for everyday users. For example, if Google and Facebook had doled out half of their 2017 profits to their users around the world,the checks would have been worth just three dollars each, according to the Center for Data Innovation.
Most companies that monetize their services with online advertising, especially those with thin margins, could not reasonably pay users even small amounts for their data. Requiring them to do so would likely force them to stop placing targeted ads, which would lower their revenues and lead them to cut their services or shut down entirely. Others would switch to subscription models that don’t rely on monetizing data.
Some businesses might be able to work around a cash-for-data requirement by paying users for their data only after charging higher subscription fees. For example, a service might charge $10 a month for a subscription and send back a rebate for five dollars. But not all consumers are worth the same amount to advertisers.
Someone willing to spend $20,000 on a luxury vacation is worth more to marketers than someone who is struggling to pay for groceries. So high-income consumers would likely be paid more than low-income ones. Would we really want such a regressive policy?
Any of these outcomes, especially a shift toward more subscription models, would worsen America’s chronic “digital divide,” forcing many low- and middle-income individuals to pay for online services that are now free and then decide what else to give up. More services would end up on a list of choices alongside Netflix or SiriusXM, which only a fraction of households are willing and able to pay for.
Some proponents recognize there would likely be a radical shift toward more subscription models, but they seem to give little thought to the people who would be left without enough in their personal budgets to afford search engines, social networks and mobile games.
Such a scenario is a fantasy that appeals only to a small cohort of detached anti-corporate elite. But, even for them, the appeal goes only so far. When companies have actually offered their customers incentives for sharing more information, privacy advocates have gone on the attack.
For example, critics cried foul when Google offered a voluntary web tracking extension for its Chrome browser that would pay users $5 a month in return for tracking their online behavior. They did the same when AT&T offered a discounted price for broadband service to users who contribute more data and when Facebook paid users up to $20 per month in exchange for data about their smartphone use.
The truth is, many privacy advocates will only settle for the proverbial free lunch. They believe users should get access to free services without providing their personal information in return. Alas, in the real world, companies can’t provide goods or services without earning income, either through direct payments from customers or through indirect payments from advertisers and sponsors. And while most Americans may say they want more privacy, few are willing to pay for it.
Grownups should be able to decide for themselves whether to share data to access free online services. Enacting a paternalistic law to protect them is a bad idea.