Editor’s Note: It isn’t just the NSA. Corporations have been storing massive troves of our data, and it’s not about national security. It’s about making money. As businesses know more about our behaviors, wants and needs, they are beginning to influence our spending decisions in surprising ways.
In their book, “All You Can Pay,” Anna Bernasek and D.T. Mongan paint an Orwellian future, where big data reigns. This data collection won’t just infringe on the privacy of real people, they argue, but also on market competition. The following is a direct excerpt from chapter eight of “All You Can Pay,” which was published May 26.
Imagine going to a restaurant a few years hence. A place you are familiar with. You didn’t make a reservation, but it was almost as if they knew you were coming. They greeted you by name and seated you right away at your preferred table. The waiter offered up a special dish just for you. And of course you bought the bottled water, perhaps one too many drinks, and your favorite dessert. It was all a little expensive — the place always seems a little expensive — but they did a great job. On the way home, you wondered whether you really needed that glass of the dessert wine and the special appetizer. But there’s no doubt that you thoroughly enjoyed the meal.
The restaurant seemed to know what you like, because they did, in fact, know you very well. While you were on your way to the restaurant, an alert with your name and picture popped up on the screen in the host’s podium. Cameras took in your face, height, posture, body type, and hair and eye color and compared all of that to your last visit, confirming your identification.
Although you didn’t make a reservation, your cell phone gave away your location and put a name and an e-mail to your face. The data service told the restaurant early on that you were likely to arrive. Then as you approached, geolocation from your phone alerted the host. By the time you stepped inside, the host could greet you by name with complete confidence. The menu and pricing were triangulated from the restaurant’s stock of ingredients and your personal data.
As cameras recorded nonverbal clues, other sensors picked up your voice and comments at each stage of the meal, whether good or bad, as well as other items not limited to just the restaurant or the food. Your chair recorded your weight before and after and noted your shifting position along the way. The exact duration of each meal element was recorded and managed.
The menu wasn’t printed on paper. You selected your meal from a lightweight tablet computer screen. Because you are a repeat customer, the menu choices (and the prices) were just for you. The first drink was discounted just enough so that you couldn’t resist it. When it came to the second, what the hell, you only live once. In collaboration with the data giant that provides back-office services to the restaurant, a detailed psychograph of your desires and propensities allowed the restaurant to almost perfectly anticipate what you would buy and how much you would pay.
Lots of other data backed up the psychograph. The restaurant glassware spoke volumes. What, how much, and how fast you drank was just the tip of the iceberg. Back at the dishwashing station, the plongeur ran a quick swab around the rim of your glass and tossed the tip into an analyzer. From a tiny drop of saliva, a minute amount of unique DNA was retrieved and fully sequenced. Your trip to the bathroom produced a trove of data. Although the restaurant would be quick to assure you that no human reviews the sounds and images of your bathroom performance, the machines never sleep. Your sound and motion was thoroughly digitized, analyzed, and recorded. “Intelligent” plumbing performed further tests. The restaurant now has a more complete medical record of you than your physician ever had.
Perhaps you didn’t notice, but on the back of the menu was the following printed blurb:
It’s doubtful that you read it, but even if you did, you probably would have felt okay about the vaguely comforting words. The restaurant and its data partner are certainly okay with it. It’s easy for them to promise not to reduce your rights because under that policy, as a practical matter, your rights are approximately nil.
Working with its data partner, the restaurant gave you exactly what you wanted and collected some extra revenue for that. The restaurateur does a steady business, nothing to complain about. He can’t seem to get ahead, though. That’s because every time receipts go up, lo and behold, the data partner increases its charges by a similar amount. Over the course of a year, there’s a lot of money going out the door to the data partner. But there’s no way the restaurant can compete with- out data. Lots of other restaurants are willing to give a great experience based on big data.
The Data Squeeze
The “restaurant of the future” doesn’t exist. It’s hard to imagine that anyone is taking DNA from restaurant glasses today, and restroom surveillance seems beyond the pale. Although companies are, in fact, working hard to develop psychographic profiles of consumers on a mass scale, most of this work is at a crude stage. Restaurants are not varying their menus to reﬂect insights from big data. At least not yet.
But the technologies and analytics described in the restaurant story actually do exist, even if only in early versions. The forward march of technology is relentless. The price of sensors, computing power, connectivity, and data storage falls dramatically year after year. The capability of wringing actionable intelligence from mountains of data increases even more quickly. And the systems and business processes that allow product customization and fast pricing improve every day. Unless limited through grassroots consumer demand or top-down legal authority, all of the consequences described in the restaurant tale are virtually certain to occur, even if the exact methods differ.
And that will usher in a new economic order. Conceivably, a single data giant, or more likely a few data giants, will hold unprecedented power over what consumers know, what consumers are offered, and what consumers finally pay. With their granular, real-time knowledge of consumer surplus, data giants will tailor commerce to individual tastes and circumstances. Personalized customization and restrictions on transfer will erode the resale market, making arbitrage impossible. The mass market will disappear into an immensely complex, data-driven market in which prices vary from minute to minute and individual to individual. Standard goods and services will evolve into a multidimensional tapestry of customized offerings. Fortunes on a scale never before possible will be created. The age of the consumer sovereign and commoditized products will finally expire.
The imbalance of information will be profound. No person or entity lacking access to the data and the analytic resources of a data giant stands even a remote chance of bargaining effectively with a data giant. Take comparison-shopping sites, for example. For airline travel, web services such as Expedia or Kayak appear to offer a broad survey of airline offerings. And in fact, they did that reasonably well, at first. But airlines have been quick to respond. Some, such as Southwest Airlines, simply don’t participate. You can’t price a Southwest ticket on Kayak because Southwest won’t let you. Others opened up a range of customized features that makes comparison difficult. So what if you book the lowest fare if you unexpectedly find yourself paying a fee that was not readily apparent on Kayak. And there’s nothing to stop the comparison sites from favoring one product over another, at the consumer’s expense. Even more importantly, a search on Kayak reveals data reflecting a single point in time. The airline pricing engine that you are unknowingly bargaining with has vastly more information. It knows what customers are buying and what they are rejecting as it shifts the price from moment to moment. You will never know if you can get a better price if you wait a day to book or if you should have booked earlier. No one has the time to sit on Kayak for days to watch prices, and even if they did, an individual lacks the analytic chops to discern how many seats remain open and the optimum time to buy. The pricing engine, on the other hand, contains very accurate information about inventory, demand, and competition and will always out-bargain the individual except in cases of pure random chance.
When you add up asymmetric information, price discrimination, mass customization, and restrictions on the transferability of products, you see nothing less than the systematic dismantling of the free market. What remains is a fatally flawed economy in which natural monopolies flourish and immense economic power is overwhelmingly concentrated in the hands of a few.