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No, internet users are not paying with their data

The exchange of data is a fundamentally different exchange of value than other transactions.

A cell phone being used.

A cell phone being used. Photo Credit: Getty Images/iStockphoto / skynesher

Every day, hundreds of millions of people go online to search the web, watch videos, read content, and catch up with friends — all without paying a single cent. But some critics deride this free ecosystem, claiming that not only are unsuspecting consumers “paying” for these services with their data but they are getting a rotten deal.

To fix this, they argue, government should enact tougher privacy laws or even give consumers property rights over their personal data. However, data is not like cash, and enacting laws and regulations based on this misconception would both harm America’s digital economy and make the lives of digital consumers considerably worse.

The exchange of data is a fundamentally different exchange of value than other transactions. Unlike most goods, data is non-rivalrous: many different companies can collect, share and use the same data simultaneously. Similarly, when consumers “pay with data” to access a website, they still have the same amount of data after the transaction as before. As a result, users have an infinite resource available to them to access free online services. In other words, if I give you $10, I have $10 less. But if I tell you I am a Star Wars fan, now we both know that information. Sharing my data does not preclude me from sharing the same data to access any number of services.

Yet most detractors do not understand how services turn user data into value, mistakenly arguing that the interests of ad-supported companies and consumers are not aligned when users are not paying for services. Indeed, many go so far as to claim that if consumers are not paying money to use a service, then they are the product. The clear implication is that free services treat consumers worse than those that require payment.

This claim could not be further from the truth. Ad-supported digital services turn data into value by functioning as two-sided markets that connect consumers and advertisers. Users get access to a free service and advertisers get access to an audience for its ads. In most cases, the advertiser does not even know which users see their ad, only that the ad is placed in front of a targeted group of people, such as people who live in Washington or have an interest in travel.

Moreover, simply paying for a service does not immediately translate into a better experience for the consumer. For example, airline passengers often cite increasingly cramped airplane seats, lack of amenities and poor customer service — despite paying for tickets. Indeed, whether a company’s business model is subscription-based, pay-per single use, ad-based or any combination of the three has no bearing on the quality of consumer experiences.

Unfortunately, a growing number of advocates and some policymakers have started calling for privacy regulations for free digital services because they do not understand how ad-supported services operate nor see the value they generate for users. For example, Congress introduced legislation in April to require affirmative consent for data collection. These regulations would likely have a severe effect on the free internet ecosystem by reducing the effectiveness of advertising. One study of European regulations that limited how advertisers can collect and use consumer information for targeted advertising found that these rules reduced the effectiveness of online ads by 65 percent — leading to a massive reduction in revenue.

With much less money from advertising, some companies would have to switch from a free, ad-supported business model to a fee-for-service or subscription business model, where customers would have to pay for services that were once free. You can hear the complaints now: Why are these greedy companies now charging for things they used to offer free of charge?

Policymakers should recognize that the exchange of data for services is not a zero-sum game, and businesses and consumers mutually benefit from the choice to share data. Moreover, not every user can afford to purchase subscription services, and no business can offer free services forever without monetizing them. In short, policymakers should not treat data as if it is a limited resource that must be rationed. Doing so can undercut the ability of consumers to gain access to innovative services, unnecessarily restrict how companies offer free or low-cost services, and limit society’s ability to use data for the benefit of all.

Alan McQuinn is a senior policy analyst at the Information Technology and Innovation Foundation. He wrote this for InsideSources.com.

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