On management: Scanner in the works

It is not only spooks who should be concerned about the Edward Snowden affair. Reported trawling of internet traffic by US and UK security agencies raises important questions for business too.

The context is the importance of digital identity in a changing internet economy. With the increase in computing power and the proliferation of mobile and smart devices, personal data are seen increasingly as “the new oil”, an emerging asset class heralding creative destruction that will spawn fresh industries and kill off old ones.

According to Boston Consulting Group, the value of harvesting personal data could reach €1tn a year by 2020 in Europe alone – equivalent to 8 per cent of combined EU gross domestic product. This could benefit individuals, companies and especially governments, that could reap efficiency gains through better targeting and delivery of public services.

But here lies the rub. Such benefits will not accrue automatically. Only a fraction of the potential value of information generated by the coming “internet of things”, in which everyday objects are connected to the network, will be realised unless people voluntarily share personal data – or trust organisations to use data with respect and for what they were intended. These uses do not include spying on people.

This matters. For all the “big data” hoovered up in corporate databases, the customer profiles they contain are based on inference and modelling. Online, people lie to evade intrusive questioning, while marketers bemoan the millions wasted on inaccurate CRM (customer relationship management) systems that tell them little about people’s real preferences.

It is not information gleaned indirectly from third parties but “first-party” data that is the Holy Grail – freely volunteered details, known only to the individual with permission to use them. Advocates believe it could lead to a whole new internet economy.

In his book The Intention Economy, Doc Searls, a fellow of the University of California Santa Barbara Center for Information Technology and Society, argues that the internet has so far barely changed today’s sales and marketing model. For consumers it is still the same shouty “attention economy” as before, only now Google and Facebook are the medium and ads are “targeted” according to presumed preference.

Yet even targeted ads are guesswork – click-through rates remain abysmally low.

Searls and a growing band of challengers, however, want to stand this on its head. Start from the superior value of volunteered information, he says, and imagine an economy based on customer “pull” rather than producer “push”. Companies would respond to customers signalling their real intentions. Those that helped customers get what they wanted would benefit from real loyalty, less wasted ad and sales effort and higher returns. Welcome to the world of VRM (vendor relationship management) in which consumers and trusted companies together create a low-friction, high-response economy, and take a big stride towards the internet’s full potential.

This is the works into which the US National Security Agency has thrown a hefty spanner. There is already a backlash against privacy intrusions online. According to Pew Internet, the US research project, 86 per cent of internet users have taken steps to protect their identity – from advertisers as well as criminals – while “privacy-enhancing technology” is today’s hottest category in California venture capital circles.

The revelations about the NSA can only intensify these trends, which pose a triple challenge for internet firms. The Information Technology & Innovation Foundation think-tank says suspicions of co-operation with the NSA could cost the US cloud computing industry $35bn in lost revenues from potential foreign customers. At the same time, growing distrust among individual web users undermines the traditional advertising model from which companies make most of their current revenues and blocks the move towards a high-trust, low-friction internet economy.

“Cryptography forms the basis of trust online,” says Bruce Schneier, a fellow of Harvard University’s Berkman Center for Internet & Society. “By deliberately undermining online security in a short-sighted effort to eavesdrop, the NSA is undermining the very fabric of the internet.”

We do not know yet how this murky imbrication of business and intelligence will play out. But the stakes could hardly be higher. Whatever happens, life will change for every internet user, customer or business, not just a few spooks.