If You Give an Ad a Cookie: How Valuable is Our Online Data?
By Scottie Barsotti
Heinz College Professor Rahul Telang and PhD candidate Arslan Aziz quantify the value of potentially intrusive information obtained from browsing cookies. Their paper weighs in on targeted internet ads and the consequent loss of consumer privacy.
One morning, you visit a retailer’s online store to look for a new toaster.
Later that day, you visit a news site and start reading an article. Then you notice it—there, beside the story, is an ad for one of the toasters you browsed earlier.
That night, you log onto Facebook. Sure enough, there’s that toaster again, showing up in your feed.
Eerie, right? That toaster was following you…
Of course, the truth is that the advertiser was tracking your activity. Telang and Aziz sought to explore the value of targeted advertising against consumers’ possibly negative feelings about being tracked.
When you browse the internet—not just shopping sites but anywhere—parcels of data called “cookies” are stored on your device. However, “tracking cookies” are extensively used by advertisers to monitor browsing behaviors, compiling and reporting user data so that future ads can be ultra-specific. Intimate, even—perhaps the most infamous example being when a Target algorithm determined a customer was pregnant and unwittingly told her family before she did.
While that story could be cut from an episode of Black Mirror for its strangeness, Target is hardly unique in the way it collects advertising-useful data from consumers. A report from Princeton University recently named Google and Facebook as the dominant players (by far) in the online advertising game, but that the number of third parties tracking user activity is in the tens of thousands.
“As of now, in the U.S., the website you visit can track all your activity and it can also allow other third-party agencies to track your activity,” said Aziz. “They can do whatever they want with this information.”
Consumers are spending more and more time looking at digital screens every year so it’s no wonder that online and mobile advertising revenues have spiked. However, unlike television, radio, or print media in which ads are catered to broad demographics, online ads can be uncannily pinpointed. That precision has been called “the holy grail in advertising.”
That doesn’t mean Americans are comfortable with it. Or even explicitly consent to it.
Tracking cookies are great for firms…so what’s in it for consumers?
You may ask yourself: Why do we give all of this data away for free? In real life, if we participate in a focus group or market research, we get paid for providing data and opinions to advertisers. So why are the rules different online?
Aziz argues that we don’t, in fact, give away our data for free, pointing to the way the Internet and social media have changed the way we source and interact with content—and what we’re willing to pay for it. He notes that users have become accustomed to getting their email and social media, for example, at no charge.
“Users get access to a whole host of free web services and content in exchange for their data and for their willingness to see ads,” said Aziz.
He suggests that the real question is how to better monetize content on the web, that “free” or ad-based content will inevitably be lower quality than paid content—note the way the Internet has given rise to “click-bait” content at the expense of investigative journalism.
“News media has become almost wholly dependent on online advertising for revenues,” said Aziz. “If advertising effectiveness is increased, [thereby] increasing ROI for advertisers and advertising revenues for content creators, while managing consumer's privacy, it could be a win-win for all.”
Apps add a new, and evolving, privacy challenge
Even if you don’t have a web browser open on your desktop, chances are commercial firms are still finding ways to collect information about you—or even spy on you.
It is common for mobile apps to access information that is more intrusive than what tracking cookies collect, such as your location, your contacts, your device’s camera or microphone, even your photo album. Many “free” apps are monetized by collecting and selling your data to advertisers.
“What you don’t know is what they’re doing with it. You hear stories about how that information gets utilized in all sorts of ways that are kind of creepy,” said Telang. “The good thing is that if anybody becomes very visible using that information, usually public opinion goes against them.”
Telang says that even sophisticated mobile users often don’t know what information is being collected about them, who might be selling (or re-selling) that information, and for what purpose.
“The lack of transparency is the biggest challenge,” said Telang.
Some information may be very privacy sensitive but not particularly useful. They're collecting it just because they can collect it.Rahul Telang
Telang and Aziz cite a 2015 Pew Research study that found only seven percent of American consumers were ‘somewhat confident’ or ‘very confident’ their data was secure with online advertisers, a lower degree of confidence than credit card companies, social networks, and government agencies.
Also, according to a Harris Interactive poll, 89 percent of consumers said they would avoid doing business with companies that do not adequately protect their privacy. (See our other story this month on Telang’s related research into customer loyalty following bank breaches).
So, do targeted ads predictably drive sales to such an extent that alienating some customers is worth it?
Telang and Aziz say: yes and no.
Their study shows that only certain kinds of cookie data are effective at predicting purchase behavior, such as whether the consumer has purchased from the site in the past, clicked on an ad previously, or added a product to a shopping cart without completing the purchase. However, that effectiveness only progresses up to a certain point. As more data is mined, there is a diminishing return in predictive accuracy.
“Why collect information that is not even meaningful?” said Telang. “Some information may be very privacy sensitive but not particularly useful to the firm. They’re collecting it just because they can collect it.”
This research suggests that restraint by firms when it comes to data collection is not only possible, but advantageous. Firms can identify and target ads to the consumers most likely to make a purchase without over-reaching and grabbing so much data it raises eyebrows (or wastes money).
On the other hand, Aziz questions whether users are informed about this issue enough for it to impact their behaviors.
“Most consumers do not take the time and effort to evaluate the company's privacy policy before transacting with them,” he said. “While consumers have a self-reported aversion to transact with unsecure companies, it isn't exactly matched with how they spend their dollars.”
That, however, could soon change. Congress passed and President Trump recently signed into law a repeal of Obama-era Federal Communications Commission rules related to Internet privacy, giving greater latitude to Internet service providers to collect and sell users’ browsing histories without consent, and broader liberty to use tracking cookies to surveil activity.
That decision has thrust privacy back into the national discussion. What remains to be seen is what impact, if any, it will have on consumers and how they comport themselves—and their wallets—online.
Aziz and Telang's paper is entitled, "What Is a Digital Cookie Worth?" You can download it by following the link below.