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What Are The Risks Of Data Monetization?

What to look out for

15May

Big data is vital to a company’s ability to gain insights, and advances in technology have made it available to businesses of all sizes in ways never before thought possible. But there are other ways to see value from the masses of information being collected.

Data monetization is firms attempt to leverage the data they gather either in exchange for goods or money. Data collected by firms is packaged along with their interactions with customers and ecosystems, and then either bartered or sold outright. According to research conducted by Gartner Research, Inc, 30% of businesses will have started directly or indirectly monetizing their data by 2016. It is therefore vital for firms to get ahead of the game to remain competitive.

However, to effectively monetize data a company must be willing to confront a number of risks.

Accenture categorises the different levels of monetization in a ‘value pyramid’. At the bottom is firms who offer raw data with no processing. Enterprises that offer such services do so either for free or at low cost, and this is considered a low risk and low reward venture. At the second level of pyramid, there is an increasing level of sophistication in regard to the analytics a company utilizes to process and package the data. This involves considerably higher levels of investment, and therefore risk, but the rewards are also greater. At the top of the pyramid is firms which offer a full solution. Such companies have in place an entire distribution strategy in a very closed ecosystem that solves a problem in its entirety.

At the forefront of the risks companies must consider when putting together a data montization strategy is the legal ramifications. In the European Union, privacy laws cover all data, whereas laws in the United States are more industry specific - focusing on financial information, health information and children. The Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability Act of 1996 are two prominent examples of such laws. US laws are further complicated in that they can vary from state to state. Failure to abide by these laws is likely to result in severe penalties, including large fines and, in some cases, criminal prosecution. Director of Hogan Lovell’s Privacy and Information Management practice group Christopher Wolf notes that: “Although privacy laws in the U.S. are not as expansive as those in the EU, the enforcement is far more robust. So, the EU has more on paper, but in many ways, privacy practices in the U.S. are under closer scrutiny.”

There are also contractual restrictions to take into consideration, with many commercial agreements restricting data usage and further disclosure of data. Such clauses may be buried deep in contracts, so a thorough examining of these is key to mitigating the risks.

Another potential risk is to the impact on consumer trust. Trust is vital, and some may see the sale of their information as a violation. While people tend to accept a certain level of data tracking as the cost of using services like Facebook and Google - and this level of acceptance is only going to grow as the practice becomes more widespread - there has been wide scale debate about how this data is used, and occasional outrage. Transparency is vital, as is ensuring a customer’s ability to prevent their data being passed on, and making sure that any information that has to be de-identified is thoroughly done so.

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