Article Highlights

  • Big Data companies make billions of dollars of profits every quarter by exploiting your data.
  • Two senators just introduced legislation for Big Data oversight.
  • Regulation will probably knock double digits off Big Data’s share prices.

Whenever financial writers talk about Big Data — Facebook, Google, Amazon, Microsoft and other players — they use one of two stock phrases.

First: “If you’re not paying for a data service, then you’re the product.”

Platforms such as Facebook and Google are letting you use their services for free because what they really want is to harvest your data so they can make money off of it. Even companies that do charge you, such as Microsoft or Amazon’s Prime service, use your data to make even more money.

The second stock phrase is: “Data is the new oil.”

Real oil deposits were formed by millions of years of decomposing organic matter. Big Data’s “oil patch” is formed by the trickle of data coming in from billions of users every day.

Companies make money from real oil deposits by acquiring rights to them, pumping the oil out of the ground and then selling it. When the oil’s finished, the business is done.

Big Data acquires its oil patch for free.

We give data to them either willingly or unknowingly. Once they have it, Big Data companies either sell that data to others, or analyze it and sell the resulting insights.

Unlike real oil, data can be sold repeatedly. That means Big Data companies can be far more profitable, and for longer, than oil companies everywhere.

Finally, the consequences of an oil spill are environmental and can be cleaned up if those responsible are held to account.

But if there’s a spill from Big Data’s oil patch, there is no way to clean it up. Once it has escaped, data remains out there forever.

The oil industry is heavily regulated. Big Data’s oil patch isn’t regulated at all.

That may be about to change … and the results will almost certainly startle all of us.

The Data Patch Hits a Skid

We may be about to find out how much your contribution to Big Data’s oil patch is worth.

On Monday, Sens. Mark Warner, D-V.A., and Josh Hawley, R-M.O., introduced the Designing Accounting Safeguards to Help Broaden Oversight and Regulations on Data (DASHBOARD) Act.

If passed, it would require data platforms with more than 100 million monthly users to disclose the value of their users’ data.

Specifically, the bill would require those companies to:

  • Disclose to users the types of data collected and how they’re used, and provide an assessment of the value of that data once every 90 days.
  • Disclose annually to the Securities and Exchange Commission (SEC) the aggregate value of users’ data, including details of contracts with third parties, how revenue is generated by user data and measures taken to protect data.
  • Provide a setting or tool for users to delete all or part of their data.
  • Direct the SEC to develop methods for calculating the value of user data.

I think this bill has a good chance of passing. It’s one of the rare topics on which congressional Republicans and Democrats may well agree.

Republicans dislike Big Data because it’s perceived to be closer to Democrats philosophically, and responsible for censoring conservative online content.

Despite their cozy relationship with Silicon Valley, Democrats are under increasing pressure from their base to rein in abusive behavior and attack monopoly power, which is especially strong in the tech sector.

President Donald Trump would certainly have no problem signing such a bill — although he’s always unpredictable.

Data, Huh! What Is It Good For?

Given that the valuations of huge companies such as Alphabet (Google) and Facebook are based largely on the market’s estimate of the value of the data they hold, Big Data’s likely response to this bill will strain credulity.

Big Data companies are almost certain to argue that they cannot place a value on all the data they hold.

They’ll say there are too many unknowns. No one knows what new products might be developed in the future, or what revenue they’ll bring in.

No one should believe that for a minute.

Big Data companies run sophisticated models that measure the revenue streams from their existing products and assess the likely value of future uses of their data holdings.

Such models are critical for capital allocation decisions, which is the core role of any company’s senior executive team. There’s no way that they don’t have this information.

The problem is that they don’t want that information to be in the public domain.

Who knows what would happen to a company’s stock price if the market has overestimated the value of its data? How will competitors react when they find out what a company thinks its data is worth?

This, of course, is a juicy paradox.

Big Data companies make billions of dollars of profits every quarter by exploiting data that they’ve taken from us without any compensation. They regularly mismanage that data, leading to significant financial and other harms to the rest of us.

Now they’re saying that their data “oil patch,” made up of our data, is private … and exposing it would cause them harm.

At this stage, I’m not sure what the DASHBOARD Act would do to the stock prices of Big Data firms. My gut feeling is that it will probably knock double digits off their share prices.

But, honestly, it would be worth it just to see them try to squirm out of admitting just how much they’re profiting off our privacy.

Kind regards,

Ted Bauman

Editor, The Bauman Letter