Once upon a time, the most that businesses could hope to know about you boiled down to the information you’d use to obtain a mortgage: essentially, your credit score, household size, and household income. Of course, the more information businesses have about you, the better they can tailor their marketing strategy to target you. Today, with the ability to monitor your habits and access sensitive personal information, businesses have access to a veritable gold mine.
In the digital age, big data means big bucks. Many companies are scrambling to purchase and analyze huge sets of information from a number of surprising sources for use in analytics, marketing, and building business. What your bank, phone company, car dealer, and even big box store knows about you might be shocking – especially if you go out of your way to try to stay anonymous.
What Is “Big Data”?
Big data is the term used to define huge sets of information that can’t be mined, analyzed, or organized by human skill alone – the sheer volume requires digital gathering and analysis tools. While organizations have always used data to learn more about their customers, big data means the ability to predict buying patterns or define the status of consumers for more targeted marketing opportunities.
Thanks to Internet sources such as social media, online shopping site, and various other profiles you create, data companies can find, assess, and categorize information about you that you put out there yourself, a process called mining. These companies, called data brokers, are third-party entities that purchase information directly from the businesses that gathered it from you.
Businesses then purchase big data from brokers to create a more complete customer profile that goes beyond the basics. For instance, instead of just knowing your credit score, a bank might also know how much debt you have and what you tend to spend your money on.
Is Big Data Legal?
Here’s where things can get a little sticky. According to lawyer David Navetta, data brokers don’t have to play by the same rules as other entities that gather and process your information, such as credit reporting agencies. They can get around privacy laws put in place by the FTC in several ways.
The most common means of gathering and selling your information is actually your responsibility as a consumer – a website’s terms of service. Before clicking “accept” to gain access to a site, online store, service, or account, check the text for language stating whether some of your information can be sold to other companies – the FTC does require that companies intending to sell information to data brokers disclose that fact.
The second method by which big data brokers are able to skirt privacy laws is by using a process called “anonymization.” Current privacy laws only extend to personal and identifiable information, such as a household income matched with a name. Instead of using your name, address, and other personal and identifiable information, data brokers assign a code to your identity. That way, they can sell the information without any identifying factors.
However, even without your name and address, businesses can still deliver targeted ads while you browse online or send emails, or advertise services based on your online actions, household information, and lifestyle choices. Therefore, while a company may not know that John Smith is really into snowboarding based on his likes and location tagging, they may know that user 555-78954 should receive targeted ads about snowboarding gear.
How Is Big Data Sourced?
Often, consumers themselves give away their personal information to data brokers. For instance, consider your social media accounts. You may love to keep in touch with your friends and family via Facebook; you use it to announce your engagement, post pictures of your first home, and show off your brand new baby. Every time you share – even if you do so privately – that information is mined and can then be sold by Facebook. In fact, according to a class action lawsuit levied against the social media giant in January 2014, Facebook raked in $2.7 billion in sales for helping create targeted ads for companies based on the information its members posted online.
While Facebook says the allegations are a myth and promises that it doesn’t share personal information and never will, the Facebook Statement of Rights and Responsibilities sings a slightly different tune: It states that Facebook can and will sell personal information – once it’s been anonymized.
Another great source of information is your online activities. Many websites have software that can track your favorite websites, the stuff you buy on the Internet, and the online accounts you keep. That info sells for big bucks to businesses that want to know how you spend your time online and what you buy.
Depending on what you agreed to via a website’s terms of service, data brokers can receive your name and personal information after a purchase or anonymized information about your general purchase history and what type of advertisements you might respond to. Credit card info is off limits, of course.
Big data can also come from a few other sources:
- Magazines that sell subscriber data.
- Surveys you take of your own free will.
- Smartphone apps – developers often offer their apps for free, but the price might be your personal information while you use them. It’s essentially what allows developers and marketers to make their money back.
What Information Is Used for Big Data?
The information most closely related to your spending habits is usually the most valuable to data brokers. Some of the data businesses are looking for, and can easily obtain, includes the following:
- Household income
- Household size and the ages of the members of your family
- Investment propensity
- Frequency by which you make large purchases
- Age and gender
- Educational status
- General interests, and what you tend to spend your money on
- Major life changes, such as marriage, the birth of a baby, or retirement
When combined together, all of this information paints a pretty accurate description of not only your lifestyle, but where you spend your money – and how much. Businesses then use this data to increase their share of your wallet with targeted offers.
How Is Big Data Used?
Financial institutions are required to offer, in writing, a breakdown of what type of information is collected from customers, as well as how it’s used, and whether or not it’s shared with different departments in the institution – mortgages and investments, for example. That notice then has to be re-sent to the customer annually. Unless you specifically opt out, the institution can continue sharing information both inside and outside the company – typically, opt-out instructions can be found on the annual notice.
However, opting out may not always be in your best interest, since big data can in fact be used to make your life easier. One benefit is that businesses are better able to reduce marketing waste by only presenting you with offers that apply to your lifestyle, family, and household income. While you get the fringe benefit of fewer unnecessary advertisements, businesses get cheaper, more targeted marketing, lower customer acquisition costs, and better retention rates.
Here are some of the ways organizations use data about you:
- Minimize Risk for Creditors Taking on a New Debtor. A credit score alone might not be enough to predict a consumer’s behavior and ability to pay back a loan. Armed with a more complete customer profile, businesses like banks, car lenders, and even cable companies can match offers more commensurate with the risk of taking on an individual account. Minimized risk means reduced losses and greater profits for the company.
- Portfolio Maximization. Suppose you head to the bank to open a new savings account and you deposit $500. Without big data, your bank may not communicate with you more frequently than the bare minimum. However, if you have a lot more in investments, assets, and other accounts, big data helps the bank identify you as a wealthier customer and it may send you more offers or try to open more accounts as a result. Big data allows businesses to see the bigger picture and maximize a customer’s potential.
- Reduced Marketing and Acquisition Costs. If an organization knows you’re not really interested in senior care planning, it isn’t going to waste its money to send you brochures. It’s a win-win for consumers and companies, since you get less junk mail and they don’t waste resources marketing to the wrong demographic.
It’s up to you as a consumer to weigh the pros and cons of big data and how it affects your life. In some cases, you might actually notice less junk mail or fewer inapplicable offers being shown to you online. On the other hand, you might not like how much organizations know about you as a result of seemingly benign activities like posting to social media or buying a new car.
Can You Avoid Big Data?
Unfortunately, big data isn’t like a mailing list – you can’t just opt out of all of it. And it’s extremely difficult to know which sites and actions cause your data to be captured, mined, and sold to the highest bidder. If you shop or are social at all online, it’s nearly impossible to censor yourself and avoid businesses creating a customer profile based on your data.
In order to truly “opt out,” you’d have to skip out on activities such as social networking, online shopping, and gaming. On the bright side, big data is notorious for getting it wrong; industry estimates put the margin of error for customer profiles at around 40%. Your best bet is to examine the privacy terms of the websites you visit to determine if they are on the up-and-up.
Is Big Data Regulated?
A March 2012 report by the FTC called for actions to be taken to better control big data and its effect on consumers. A “Do Not Track” system was suggested as a way for consumers to completely opt out of big data sharing among brokers and businesses.
The FTC also recommends three courses of action for companies to help consumers take control of their information and how it’s shared:
- Clearer Privacy Notices. The FTC suggests that companies make a better effort in notifying when and how information is shared and whether or not it can be sold to brokers. While companies often include such language in their terms of service, it can be hard to find and even harder to understand.
- Access to Personal Information. Unlike credit reporting agencies, the FTC does not require big data to show consumers what information is being reported. A change in that policy could give you more power in what you do and do not share.
- Consumer Education. Quite frankly, consumers are usually ill-educated about big data and how it affects their lives. The FTC suggests better consumer education on data mining, including ways folks can protect themselves.
In a recent blog entry, big data strategist Mark van Rijmenam estimates that 90% of all consumer data was created in the last two years, and he expects the worldwide amount to double every two years going forward. In short, there’s really no way to escape big data.
Still, while it might feel like you’re being watched, big data can have its place when it comes to serving you as a consumer. Information that is anonymized or authorized is fairly safe, especially as major strides are made in targeting the ideal consumer for products, services, and businesses. Just be sure to educate yourself to identify less-than-legal data sharing practices, and make sure you know what you’re sharing – and how it’s being used.
How do you feel about businesses using big data to create your customer profile?