Is Silicon Valley about to turn off free internet?
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We pay for social media with our data. But not for much longer, says PARMY OLSON. With regulators getting tough and consumers more wary, we're about to start paying in cash.
Sand Hill Road looks like any other strip of asphalt in California's Bay Area: a wide thoroughfare that runs through a patch of suburbs and corporate offices just south of San Francisco. People don't walk on the pavement here. Not only is it too hot, but most are cruising around in Teslas, Porches and BMWs, and parking them outside the venture capital firms dotted along the road and hidden behind a wall of carefully-manicured bushes.
Inside the offices, the air is cool and young, smartly-dressed administrators zip around wearing headsets and professional smiles. Tech logos and screens are everywhere. The windows give way to courtyard oases filled with colourful flowers, a stark contrast to the dry brush that grows naturally outside. Food is prepared on-site by friendly chefs.
These are Silicon Valleys' most vaunted venture capital firms, businesses which can afford lavish digs thanks to the hundreds of millions of dollars they have made over the years from early bets on companies like YouTube, Facebook and Google, tech firms which grew into giants thanks to a successful, and now widespread practice of harvesting, analysing and sharing people's personal data.
Yet now some of the venture capitalists who personally made millions from backing that business model believe the tide is changing. 'The ad model is dying,' one senior partner told me in a conversation about the future of Facebook and privacy.
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Another venture capital investor in London concurred, predicting that at some point in the next five years, Facebook would probably start charging a subscription fee in at least one of the countries in which it operates – either because it is ordered to by regulators, or to meet demand. Demand? you might be wondering. Why would anyone demand to pay for an online service? Yet the last few years have shown that, surprisingly, consumers are indeed willing to pay for online content if it's on Netflix, Amazon Prime or Spotify.
The backstory to all this is an unhealthy relationship. Consumers were addicted to Facebook, and the social network was addicted to its lucrative ad-model, one that siphoned profits away from the news and publishing industries, as Facebook took unprecedented control over people's daily news consumption.
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Yet just this month, Facebook chief operating officer Sheryl Sandberg and Twitter chief executive Jack Dorsey were both hauled before the US Congress to testify about their attempts to stem the misinformation that had proliferated across their platforms and influenced elections. On fake news at least, Facebook is tightening the reins.
Many consumers have meanwhile balked at the revelations of the Cambridge Analytica scandal, in which Facebook's platform was alledgedly used to harvest the data of millions of people, which was passed on to a marketing agency that worked for Donald Trump's presidential campaign.
For years, conventional wisdom in Silicon Valley was that this was all par for the course, because consumers would never pay money for social media services. Asking for people's credit-card details was too cumbersome and consumers preferred the ease of blithely using an online service while letting advertisers track them in the background. Instead of paying with money, we paid with our data.
That's why between 2011 and 2016, the number of companies classified as adtech – those adept in the dark arts of tracking online behaviour and targeting people – grew from 150 to around 3,500, according to a study by ChiefMarTech. An entire economy appeared (one bearing striking similarities to the subprime-mortgage market that spawned the 2008 global financial meltdown), in which data brokers sliced and diced people's personal information into profiles that could be used for hyper-personalised ads about pet-care, headphones or fishing gear, ads that followed you around like a shadow from website to website.
Never mind the awkwardness created when an ad about nail clippers for dogs popped up during a work meeting; it was also plainly creepy.
Adtech companies drink plenty of Kool-Aid in Silicon Valley. They'll argue (literally) that they're providing a useful service to consumers by 'serving' them more personalised, 'relevant' ads. But studies show that more and more people don't see it that way.
They don't want to supine themselves anymore to tracking, and an increasing number of consumers are actively going into the settings of their apps and websites to turn off tracking services.
It doesn't always work, of course, since there are data firms that can still follow your behaviour online even after you've turned off cookie-tracking. But the growing intention is there, and attitudes appear to be changing.
More than a third of consumers have been using ad-blockers on the internet, while a Pew Research poll found back in 2015 that 91% of American adults consumers felt they had lost control over their personal information online. An NTIA survey conducted by the US Census Bureau found that 'nearly three-quarters of internet-using households had significant concerns about online privacy and security risks in 2017'.
Sitting in an air-conditioned conference room on Sand Hill Road, with a colourful courtyard visible through the window, one venture capital investor who made a killing from the ad-model also mused about putting his money into companies that offered privacy as key feature.
Such firms are not household names yet, but could be one day. They are messaging apps like Telegram, which encrypt personal messages by default, and virtual private networks (VPNs) that hide your online activity. One such provider called AnchorFree, the maker of the popular VPN app Hotspot Shield, announced last week that it had raised $295 million from investors, an unprecedented amount for the sector and a sign, its chief executive was recently quoted as saying, of a 'massive shift' in consumer interest in privacy apps.
Hotspot Shield has been downloaded a remarkable 650 million times and is now one of the most popular apps on the app store. It also charges a fee to a minority of premium subscribers and is profitable.
The search engine DuckDuckGo is meanwhile fighting to become a privacy-focused alternative to Google and also just raised new funding recently. It shows ads, but only based on the keywords people type into its search bar. Google, by contrast, shows ads based on a person's search history, their long tail of search, something DuckDuckGo doesn't track. Google may have started as a search company, but it became the world's biggest and ad tracking company with its lucrative businesses DoubleClick, AdMob and AdSense.
Separately, regulators appear to be toughening up their stance on social-media companies who collect and share user data. One important step towards that is the General Data Protection Regulation (GDPR) activated in Europe earlier this year, with similar laws coming to the fore in Australia and parts of North America.
One reason why it's taken so long for regulators to fight the exploitation of personal data has been obscurity around who should do the policing. The European Commissioner for Competition, for instance, has yet to formally charge any large technology company from the California Bay Area for their practices around data harvesting, because the definition of personal data is still unclear.
If data is an asset, like gold, or cash, or real estate, then having too much of it could put a company at an unfair competitive advantage, thus becoming an antitrust issue. Yet while the EU has yet to take a bold stance on data's definition, regulators in Germany have moved forward. Germany's Federal Cartel Office is doing some pioneering investigating into the extent to which Facebook's data harvesting has actually become an antitrust issue, and has argued that Mark Zuckerberg's company has come to dominate the market by gathering people's data without their consent.
The signs of change may be hard to see, but they're gradually emerging. Whether it's thanks to stronger policing by regulators, greater demand from consumers or new killer apps that offer privacy – or more likely a confluence of all three – the era of free services everywhere on the internet will probably slow down over the coming years. Expect more people to pay for quality services with their wallets, not with their data.
Parmy Olson is a writer for Forbes magazine and author of We Are Anonymous
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