The latest proposal from the fertile minds on the left of the American political spectrum is that since Facebook makes money out of us we should go steal that money. Well, what do we expect from people on the left?
There being the occasional problem with the analysis of course:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]For a general sense of the value of people’s personal data to these companies, we started with digital advertising revenue. In 2018, Facebook earned an average of roughly $110 in ad revenue per American user. This calculation, however, ignores what it costs to collect, analyze, and market user data. According to the balance sheet on file with the SEC, Facebook earned $55.8 billion worldwide in 2018, virtually all of it from targeted advertising. Facebook also reported that relevant costs came to $20.6 billion. That implies that the value of its users’ personal information was equivalent to $35.2 billion, or 63 percent of Facebook’s earnings.[/perfectpullquote]
Well, no, not really. Facebook doesn’t sell data. It sells advertising based upon the ability to select who to advertise to. The data is merely used to determine who would like to see which ads. Maybe. And if you go to Washington Monthly – where this piece is published – they will show you a rate card. Which will include the demographics of the audience that reads Washington Monthly. That is, the magazine does exactly the same in principle as Facebook. It offers the opportunity to advertise to slices and dices of the population. Sure, Facebook does it better but that’s no reason to specifically tax Facebook and not Washington Monthly.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Given these issues, we developed a proxy to distinguish the value of personal information to the online platforms and the costs to gather and monetize those data. We relied on a careful study by three business school economists who analyzed certain aspects of the Ad-Choices program created by the online advertising industry. In 2010, AdChoices announced that anyone could opt out of all targeted online ads by registering at a special website. While relatively few internet users opted out, the researchers found that those non-targeted ads produced 52 percent less revenue than comparable targeted ones. This suggests that 52 percent of digital advertising revenue is derived from the personal information used to target those ads to particular individuals.[/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Since targeted online advertising generated $108.6 billion in overall revenue in 2018, on this basis we estimate that the profits derived from American internet users’ personal data totaled $56.5 billion. Some 279.7 million Americans used the internet last year, so the value of their personal data to these online operations, after costs, came to an average of $202 per American internet user.[/perfectpullquote]
So therefore we should be taxing the companies this amount of the value of the data:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]In other words, internet companies and their users both contribute to the commercial value of the personal profiles that drive digital advertising. A straightforward solution is thus to require the companies to share the profits from those operations with users on a fifty-fifty basis. Of course, asking internet companies to write a check to every individual user would be impossibly inefficient. Instead, each company could write a single check to the government, and the government could distribute the proceeds to every household based on the number of its internet users. So, in 2022, a family of four internet users would receive $868 in payment for their personal data. The era of free riding for online companies would be over. Corporations have gotten rich by exploiting our data. It’s time for them to share the wealth.[/perfectpullquote]
Well, no. In the absence of the companies the data has no value at all. It is the existence of the companies and the business model which creates the entirety of the value. Therefore it should belong to the companies.
But that’s of course being far too complex for the sort of people who write Washington Monthly.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]There’s actually a measurement out there – a reasonable one not that we’d go to the barricades for its accuracy other than to an order of magnitude – that the simple existence of search engines is worth $18,000 a year to each of us.[/perfectpullquote]
Quite so. Email – that we get free in return for that data – is worth perhaps $3,000 per head per year. Search engines $18,000. Facebook perhaps $600. We’re getting a package worth $20,000 to $25,000 in return for our data. The data that was worth nothing at all before we were offered this package.
The solution to our being offered the bargain of the millennia – vast value in return for nothing – is that the producers must be taxed out of providing it. Yes, we know, economics can be complicated but really, it’s not this damn difficult.