How Data Portability Will Alter the “Facebook” Model

We are all aware of the belief that when a digital or Internet service is free, you are the product.

It is most probably an adaption of a 1970 quote from the TV/media industry. Free to Air TV, which is supported by advertising, means you watch for FREE in exchange for attention to advertisements.

With the introduction of PSD2, GDPR and many other new regulatory frameworks from the U.S. to Australia. The consumer can now get their data back — a.k.a. data_portability. So, the model of FREE needs to be looked at again with our updated digital glasses on.

Cash Flow Models

A classical model of a business is to collect cash in exchange for a product or service. This direct relationship (B2B or B2C) is conducted using one of three broad methods:

  • Method 1 is subscription, pre-pay, or pay in advance; irrespective of the label, it is where the payer pays in advance of receiving the product or service.
  • Method 2 is pay on demand, pay now, or pay for use. In this case, the payer pays at the point of use, consumption or acquisition. Within a short period, there is a full and final settlement.
  • Method 3 is to pay later. In this model, the payer receives the product or service and promises to pay at some agreed point in the future based on some form of contract/ trust. This post payment can be typically seen as invoicing, loans or credit.

While there are far more depth and subtlety to each model and indeed combinations thereof, the point is that the cash flow for the business is based on a direct relationship between who is paid and the payer. Essentially, there is an exchange.

To add to the direct relationship model, we know that there is an indirect relationship model. Here, the enterprise, in the course of doing business, can collect and sell on data, information, IP, skills, waste, or anything else which is a by-product/ by-service of the direct relationship (cash for the product). For example, a bank/telco/utility gains data, insights and knowledge about enterprises and customers in the delivery of the direct relationship but can sell such data which is a by-product.

A majority of businesses are a complex mix of direct and indirect relationship cash flow. Then there is Free.

The Free Model as a Derivative

The Free model created a derivative of the classic direct and indirect models. Stealing an idea from the finance community where; "A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like security) or set of assets (like an index).”

If we adjust this a little for the digital/ data world it could read: “A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying digital data asset (like your social media posts) or set of data assets (like an index of all your digital footprint).”

What does this mean to the direct and indirect relationship models if the business makes an exchange? In the Free case, an intermediary removes the direct piece by substituting free for the direct exchange and opts only to operate an indirect relationship model (a derivative).

Facebook, Google and free-to-air TV, as examples, are based on the same ideals; a free service is sufficiently needed that we (users/ consumers) will provide our attention and data (not that we always realize).

The companies take said data and sell access to their users’ attention, based on their analysis of the data (matching and personalization). There is no direct exchange of cash/value between the primary user and primary provider. The primary provider derives value from a third party who wants to reach the same users and offers a direct relationship product/service — what a mixed-up world!

However, up to now, nothing is revolutionary. It is all for context.

Users Will Dis-intermediate Facebook

GDPR, PSD2 and regulatory concepts which enable the user to take/get their data back. Users can now have their data in their place and can offer consented access to their data, under their control.

Why does this become interesting? Facebook and many free-to-air TV players are 100 percent dependent on the derivative (relationship) model today. Other players are a more complex mix of direct, indirect and some adding derivative.

Users tend to use a diverse set of services. So, their data is spread across many silos: Health, fitness, shopping, grocery, fuel, utilities, phone, entertainment, banking and many more.

The derivative players have access to typically one set of silo data today (the one they collect), and this is unlikely to change). But the prospect is real that users may collect their data from these diverse sources into one place.

While data will remain in the silos in which it was created (for many good economic and regulatory reasons), the direct business model can continue to find value and service the customer.

The derivative relationship model business may find that their customers, such as other enterprises who pay to gain access to profiled users, are more willing to access a complete data set/store which the user now holds (data portability), with the view that the user's data set will be richer, deeper, fatter, more extensive and more relevant.

Brands to Promote Data Portability

An important point to interject here is a concept that argues that growth and innovation happen at the intersections or gaps between the silos of data/ industries, e.g., Finance + Health, Finance + Search, etc. It creates a subtle but exciting innovative disruption. 

As brands hunt for growth and seek edge cases at the intersections of other verticals, getting the data is going to be hard and very expensive. However, knowing users can get the data legally, it will be in the interest of some key brand players to promote data portability to be able to gain a first mover advantage and access growth. Indeed, they can enter into a new and better customer relationship, which is based on a direct relationship and a fair exchange of value.

Users, via a platform or an intermediary, will find that they can bring the derivative model back from Free to "paid" and in the process gain an offset or income from the share of the value created on their data. 

What this means is you pay for social media, banking, utilities, health, and communications, but as the service providers get paid you receive a share of the income. It favors those who already have a direct paid relationship. The model was predicted, the route was unknown, but the regulation now supports an iteration.

The Future is in Users’ Hands

In this new model, the user, rather than being the buyer has a new role as a seller of access to their data. We intrinsically know that our disposable income, trades, interactions, searches, location, and relationships have value. Now we can access it.

While we understand this, we have been unable to access it or find how a model may emerge. The very creation of the derivative model may well have created its own end game by not having a direct relationship, leaving brands and key direct relationship players to access a new growth market.

Such interesting times!

Tony Fish (@tonyfish) is an investor, author and maverick who wrestles with the conflicts of digital and humanity.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of CDOTrends.