The True Price of “Free” Online

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Have you heard the one about the two pigs chatting in a pen? “Great place to hang out,” says one pig. “Even the food is free!” Keep this joke in mind next time you sign up for “free” sharing and “free” storage. In the age of persistent tracking, there is no such as thing as “free.” Every time we sign up for a new free service on the web and install an app, we are paying for it. Yet we don’t know what that price is, because the very system is built to obfuscate or hide it.

Most of us know that the new currency of the digital world is personal data, or “small data.” Economists claim data-driven businesses are significantly more productive. The input they work with are all the bits and pieces about every individual and his or her devices. Combined, they form our digital identity: preferences, behavior, connections, actions and intentions. That’s what we pay with when we use the many entertaining, convenient and efficient services such as Flipboard, Pinterest, Runkeeper, Instagram, Spotify, and many, many others.

But even the economists scratch their heads when you ask them what exactly the price is. What makes this so hard to determine is the fact that it’s not a one-time transaction, as simplistic models want you to believe. The idea of “my data” in return for a free offering misses the big picture. Signing up sets in motion an open-ended chain of transactions far beyond the initial service you sign up for. The average consumer  has no idea how many market participants tap into that data pipe and monetize their digital identity. Nor can they find out—since regulations and laws are outdated or riddled with loopholes to benefit the companies fencing our data.

Businesses, on the other hand, can do the math. They are constantly looking for new opportunities in big data (which is, basically, all our small data put together). Every week new studies are published about its promising future. The Boston Consulting Group just released a report entitled “The Value of Our Digital Identity,” focusing on Europe. It concludes that the personal data of consumers in the EU was worth 315 billion euros in 2011 ($402 bn) and will hit one trillion euros ($1.27 tn) in 2020.

So what exactly is the value of each of us online? As we describe in our book Fake It, there are a few ways to do some back-of-the-envelope calculations (as compiled by storage service Backupify):

• Divide the revenue of a company by the number of users. For Google, the total comes to about $27 per person per year; for Facebook and social game company Zynga, to around $5 per user per year (based on data as of spring 2012).

• If we look at the value of each user in relation to the overall valuation of a company, the price tag ranges: at photosharing site Path, $12.50 per user; Pinterest, at $28.09 per user; Instagram, $33; and Twitter, $71.43 per user.

• Finally, one can divide a company’s revenue by the pieces of content their users feed into it. In Facebook’s case, each item shared on Facebook is worth 2.5 cents; on Twitter, each tweet is worth one-tenth of a cent; professional searches on LinkedIn are worth a good 12 cents each; and each check-in with location-based service Foursquare is worth 40 cents.

What’s interesting is that hardly any companies offer paid alternatives that respect our privacy, perhaps because it would mean admitting that their free versions are built to take advantage of you by very design.

In order to stop companies from monetizing your data, there are—alas—only three real choices:

• Don’t use a free service for email, documents or photos. Tell the provider that you will reconsider them if they launch a real alternative. Look for alternatives that do not track, mine, store and sell your personal data. They do exist: products such as Hushmail for email, or cloud storage services where you personally encrypt your data and don’t let the provider do it for you.

• Use it, but fake it. Use a different identity than your original identity, including a made up name, birthday, a disposable email address, and hide your IP-address with a anonymizer or VPN service.

• If you must use services like Facebook or Google under your real name, at least use them with a dedicated browser that you use for nothing else to insulate the data leakage. And make sure you install tools to block the trackers.

• Make it a habit to demand a written guarantee from service providers that you can trust them with your data. Writing to them is, at the least, an educational endeavor, since most so-called “privacy policies” are in fact “data usage policies” dressed up to make a company look as if it care about your data. Almost all of them will say they will “never rent or sell” your information. But have you ever noticed they don’t talk about “buying” your information? A curious little omission, right? That’s the manhole leading into the hidden hidden value chain of personal data.

Privacy is not dead. Since we are rushing into a data-driven world, it is more valuable than ever.  But only if we treat our data with care and don’t hand it out to any stranger. That’s another interesting nugget from the aforementioned BCG report: Consumers are increasingly concerned about losing their privacy and control over their personal data. And companies have a lot at stake—two-thirds of the potential value generation, or 440 billion euros in 2020 ($560 bn), are at risk if companies fail to establish a trusted flow of personal data, so consumers feel comfortable sharing their digital identities.

We need to let companies and their lobbyists know there are consequences if they ignore our concerns.

Photographs by Thomas Kern, Anders Debel Hansen

Illustration by Jeff Pastorek