10/9/2017 What’s The Value Of Your Data?

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What’s The Value Of Your Data?

Posted Oct 13, 2015 by Pauline Glikman, Nicolas Glady

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On September 18, 2015, Comcast reached a $33

Pauline Glikman million settlement over claims that it published
CONTRIBUTOR
personal information of more than 75,000

Pauline Glikman is a business analytics student

customers — even though those customers had
at ESSEC Business School. specifically paid a fee for their information to be
kept private. As a consequence, the company will
pay a $100 compensation to each victim.

Nicolas Glady
CONTRIBUTOR
This settlement is a turning point in our
technological history.
Nicolas Glady is a doctor in econometrics,
professor at ESSEC Business School, the
Not just because it involves the biggest cable
Accenture Strategic Business Analytics Chair company in the world, but, more importantly,

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holder and the Director of the Center for Digital because the clients who suffered the breach had
Business.
specifically paid for their data to be protected.

This case is particularly interesting because, for

the first time, it puts a price tag on the amount victims should receive when their personal
information is illegally published.

Beyond this mere example, the issue of the value of personal data is key to our economy. Data
has become the most important strategic asset of pure players like Google and Facebook. And
among the biggest companies in the world, by market capitalization, a majority see their
valuation estimated as a function of their user base and the data they collect.

Data Valuation By The Shareholder

A first approach could be to analyze the issue of valuation of personal data through the eyes of
the shareholder. In other words, personal data is worth whatever the shareholder is willing to
pay to acquire client data from a data-centric company, as was the case when WhatsApp and
Instagram were acquired by Facebook, for instance.

At the time of acquisition, these companies are often not profitable and are generally being
valuated on the basis of their user base and data. It is not uncommon to hear that these
acquisitions are aimed at buying the user base. However, one cannot buy an individual or a
particular relationship. In the knowledge economy, it is the data about that individual that is
being acquired and, in particular, an ability to maintain the quality and strength of that
relationship over time.

In light of this valuation method, Facebook decided to acquire WhatsApp for $19 billion; that is,
to pay $30 for each of its 600 million users. Similarly, the company headquartered in Menlo
Park also paid $30 for each of the 33 million Instagram users back in 2012. A similar
computation was applied when Minecraft was acquired by Microsoft.

In this situation, the value of a user

varies from about $15 to more than $40. Data has become a strategic asset that
The difference lies mostly in the allows companies to acquire or
potential expected from each user. This
maintain a competitive edge.
potential depends on the company’s
business and, therefore, on the type of
data it collects. In the world of big data, the richer and wider the information the company has,

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the more money it can make from its users’ activity, and the bigger the company’s valuation.
The valuation of a company, of its clients and of the data it owns are therefore intertwined.

Data Valuation By The Company Itself

A second way to approach this question is to account for the revenues generated by the
customers (when they do. It was not the case for Instagram or Whatsapp at the time of their
acquisitions.) The generally accepted valuation method in this situation is to estimate the value
of a client as a function of the net present value it will generate for the company in the future.
This is called the Customer Lifetime Value (CLV).

The CLV is predicted by using customers’ transaction data and allows decision makers to
undertake the most relevant and profitable business actions. The CLV estimates the value of
the commercial relationship the company has with individual customers. Hence it provides a
maximalist range of our personal data valuation. The personal data collected by a company
and its relationship with individual customers are therefore intertwined.

Data Valuation By The Individual User

Finally, how do we, as users of products and services of digital companies, value our own
personal data? It is interesting to note that while many fiercely oppose corporations using their
personal data, very few are willing to pay an extra fee to protect it.

Indeed, many services offering to protect our data have emerged on the web. And unlike
companies like Google or Facebook that monetize our data via their advertising services, those
alternatives are often fee-based for obvious economic reasons. For instance, FastMail offers an
alternative to Gmail. Or Zoho, which is a Google Docs-like offer. But these services have not
really been successful until now. The dominant model remains one of free access to services in
exchange for a commercial use of our data.

A Worldwide Data Market

This market tendency to monetize data collected on the Internet is accelerating. Data brokers
and data exchange centers are multiplying. According to Privacy Rights Clearinghouse, there
are currently 270 data brokers in the world. These professionals collect all types of personal
data (such as public data, loyalty cards data, etc.) and sell it. The value of this data varies, but is
often below $1.

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For example, general information about an individual (age, sex, locality) costs only $0.0007.
Personal data on a consumer who has reported some level of interest for a trip or a financial
product is slightly more expensive. For instance, to obtain a list containing the names of
individuals suffering from a particular disease, you need to spend about $0.30 per name.

Lawmakers are beginning to show interest in regulating these activities. In the U.S. in 2014, the
FTC requested that a law be approved to have greater transparency on those markets.
Elsewhere, lawmakers have taken different approaches, often on the basis of local, cultural
and historical factors.

For instance, Germany has legislation

The valuation of a company, of its that is truly protective of personal data,
clients and of the data it owns are for obvious reasons grounded in its
history. In France, the data watchdog
intertwined.
CNIL opposes those practices, but finds
itself unable to accomplish much more
in a world where web giants make their own laws by means of terms and conditions for
services that users accept without paying much attention, thus allowing for the collection of
their personal data.

A Strategic Asset In The Knowledge Economy

In the knowledge economy, data has become a strategic asset that allows companies to
acquire or maintain a competitive edge. For the shareholder, data embodies a financial
potential. For the company itself, data can be used to optimize the way it does business:
acquisition, retention, targeting, pricing, etc. Recently, data exchange platforms have been
emerging. However, the value of personal data still depends largely on who uses it, how it is
being used and in what context. The value of raw data varies from a hundred cents to a
hundred dollars per individual. If raw data has a very low value, the more it is enriched,
analyzed and leveraged for specialized uses, the more its value increases.

And despite large-scale outrage over data breaches, it looks as if the only part of the data chain
that is not willing to pay in order to protect it is paradoxically the individual himself —
who happens to be its source.

FEATURED IMAGE: BRYCE DURBIN

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