This is the first article in a series of posts that addresses the value of personal data.

Image by Japanese collective Team Lab

In this series of articles, we will shed light on the value of one of the most important assets in the modern age: Personal data. Since today’s consumer data marketplaces provide little access and limited pricing information to the average consumer, we will take a variety of approaches to estimate the market value of different categories of personal data that can be used for advertising, credit scoring, market research, and even personalized health care and the training of AI systems. Our ultimate objective is to develop valuation techniques and a comprehensive estimate for the total present value of the average consumer’s personal data, what factors impact value, and how that value might grow over time.

Part 1: Digital Advertising

An average US consumer can make $240 per year monetizing their data for digital advertising

Valuing personal data is difficult. Even though consumer data — like age, gender, location, purchase history, and browsing behavior — has become an increasingly critical ingredient for the fast-growing digital advertising industry that now generates tens of billions of dollars annually, there still aren’t any high-volume marketplaces where personal data is transparently priced and traded. In other words, the average person doesn’t have any good way to determine the value of their own personal data.

Most likely that’s on purpose. Big digital players know that if consumer data was an efficiently and transparently priced asset, consumers would be less likely to provide the advertisers, data brokers, and tech giants that dominate the personal data economy the nearly unfettered access to the information that they now enjoy.

How much is our data really worth?

As a way of answering this question, let’s take a quick and dirty approach to how much social media giant Facebook makes with our personal data.

Facebook utilizes user data, like age, location, social relationships, interests, and browsing history, to target digital advertising on its own properties, including Facebook, Messenger, Instagram, as well as sites and applications in its broader third-party network. In 2016, Facebook generated nearly $27 billion in revenue through its advertising products, which amounts to approximately $20 per monthly active user or MAU per year. Facebook users in more developed countries, like the US, generate more revenue for the company, on average — approximately 4X the ARPU of the typical global user — while users in less developed countries generate a smaller amount per capita.[1]

Image by Weronika Gesicka

Looking at the data value chain, the personal data Facebook collects — our data — only contributes a portion of the company’s total advertising revenue. Marketers not only pay for the personal data that facilitates targeting, they also buy distribution, or access, to eyeballs. Ad products are the combination of data and distribution. Without one, the other is much less valuable. The critical question becomes what percentage of the total value is personal data and what is distribution?

Without having specific, non-public details about Facebook’s operations, we need to develop our own techniques and proxies from similar markets to develop estimates about the value of personal data. One particularly relevant market to investigate is online display advertising, since display ads are typically bought and sold through high-volume ad exchanges. These digital display ad marketplaces use real-time bidding systems, or auctions, where transactions occur in milliseconds, or less time than it takes a web page to load. Here’s a basic summary of how a display ad marketplace works:

As an ad impression is loaded in the user’s browser, information about the user and the current page is passed to the ad exchange in real-time. Advertisers decide which ad impressions to buy based on criteria, such as web browsing history and user characteristics. The price of the ad, or impression, is auctioned off in real time to the highest-paying bidder, or advertiser, with the price determined by the market’s supply and demand. The ad is immediately loaded onto the user’s page.

An August 2017 research paper published by the University of Rochester Simon School of Business used online display ad exchange transactions to estimate the value of an individual’s behavioral data. By examining differences within comparable ad inventory, the authors found that ad impressions served to opt-out users (users for which the advertisers didn’t have access to behavioral data) fetched 59.2% lower prices on average than impressions served to users with tracking cookies (users for which the advertisers had access to behavioral data).[2] If we apply this result to the $80 ARPU for an American Facebook user, we derive a value of approximately $47 for the average user’s behavioral data in 2016.

Image by Tishk Barzanji

How much is the US Digital Advertising industry making with >your< data?

Expanding on the Facebook analysis above, we can extrapolate the $47/year number to estimate the value of an average consumer’s personal data to the broader digital advertising industry. In 2016, the US Digital Advertising industry represented $83 billion in revenue, with Facebook accounting for 19.7% of the total.[3] Using basic math we can quickly conclude that in 2016 the industry was able to generate value of approximately $240 per capita using >your< personal data to help fuel the digital advertising ecosystem.

Although this is a rough estimate using publicly available information and admittedly simplistic techniques, it provides a sense of the magnitude of the economic value of personal data. In all likelihood, the number is probably much higher when additional, high-value data — such as purchase history, location, app usage, communication patterns, financial information, among many others — are considered.

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References

[1] Source: Facebook SEC Filings.

[2] Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3020503

[3] Source: eMarketer, http://www.adweek.com/digital/u-s-digital-advertising-will-make-83-billion-this-year-says-emarketer/

Images

Japanese collective Team Lab — https://www.teamlab.art/w/vortices/