How Big Tech uses data privacy concerns for market dominance

As the global pandemic drags on, and even more of our daily lives move online, there have been growing concerns over consumer data privacy as more people realize that their online activity — from search history to website visits to online purchases and beyond — is recorded and used by companies for myriad purposes. Consumer data privacy is today a top concern among consumers, regulators and legislators.

Amid calls for increased privacy protections, Big Tech companies like Apple and Google have taken big steps. For instance, in April 2021, Apple introduced App Tracking Transparency, a feature that requires app makers to ask users for permission to track them across iPhone apps and services. In addition, by 2023, Google plans to phase out third-party cookies in Chrome, which are used to track users online, target ads and measure ad performance.

While both seem like steps in the right direction for consumer privacy, there is far more to the story. Apple’s and Google’s privacy features will provide both companies with a competitive edge over fellow tech giants and countless other businesses in the digital advertising space. With these changes, Big Tech retains its use of consumer data but restricts it from its customers, all under the guise of consumer privacy.

Amazon shows where all this can lead. While most of the industry has focused on using consumer data for ad targeting, Amazon has spent the better part of two decades assembling and using this data for digital marketing and ecommerce. In the process, it’s built a wealth of AI experience and cornered a whopping 41% of the U.S. ecommerce market.

How Big Tech benefits from privacy protections

By using the keystone issue of consumer privacy to limit access to consumer data, Big Tech not only burnishes its privacy-friendly image but improves its competitive standing versus other tech titans. Consider the outsized impact of Apple’s App Tracking Transparency feature on Facebook: on the surface, it seems innocuous enough. Why shouldn’t app users be asked for their permission and given the chance to opt-out? 

However, when users opt-out, the app loses access to the device’s IDFA, an industry-standard unique identifier required to target advertising to mobile devices. Apple’s App Tracking Transparency effectively puts an end to the IDFA, impacting Facebook and every other company — large and small — with a business model built around mobile advertising. It also impacts every company that relies on digital advertising to reach prospects and grow its business.

Facebook has said that Apple’s push for data privacy is being used to advance its own business model for profit, especially amid reports that Apple plans to expand its advertising business. Other critics have questioned if, through its data privacy feature, Apple is trying to strongarm app developers into generating revenue via in-app purchases and subscriptions—of which Apple takes a percentage fee. In any case, Apple retains access to and use of its first-party data, while the app developers who rely on its app store pay the price.

Google’s plan to eliminate third-party cookies from its Chrome browser in 2023 is facing similar scrutiny. By removing third-party cookies in Chrome, Google will stifle digital advertising competition that relies on cookies, while simultaneously strengthening its dominance, since the elimination of cookies does not impact Google’s ability to collect first-party data through its own services, like Google Search, Gmail, Maps or YouTube. Furthermore, Google’s privacy protections will likely result in the company’s own data becoming more valuable as companies struggle to source third-party ad targeting data.

Brands and marketers take matters into their own hands

In the face of consumer privacy protections that stand to upend the advertising industry, brands and marketers have sprung into action. To decrease their reliance on third-party data, companies have begun to invest in their own first-party databases, which may contain dozens or even hundreds of data points for each customer — information like demographics, the store locations they visit, the products they buy, how often they return, the competitors they shop at and so on.

This might sound like overkill, but detailed customer data is foundational not only to ad targeting but, even more importantly, across all digital marketing. As companies in all industries invest more in digital customer experiences and consumers engage with those experiences, data is generated as a byproduct. Over time, companies can use this data to develop complete behavioral profiles of their customers, learning more about them and their interactions with the brand. This same data then provides the fuel needed to acquire new customers, engage existing ones, and win back those at risk of leaving. 

Knowing that a customer is a sports fan and parent of teenagers, for example, a hotel company could tailor every communication accordingly, offering up vacation packages during school holidays, leading with family- or sports-oriented destinations and adding on tickets to a favorite team or sports experience while in town. Increasingly, this is the sort of hyper-personalized, “I want what I want, when I want it” experience that modern consumers expect, and one that’s virtually impossible to create without a lot of consumer data behind the scenes.

While the tactics that companies use to collect this data vary, customers almost always offer up this data themselves. Information about products purchased and dollars spent, for example, will be recorded during the checkout process and make its way into a customer database. Still more data will be collected when that person signs up for a loyalty program, enters a sweepstake, takes an online quiz or uses a company’s app. It’s long been the case that people readily share their personal information when they stand to gain something in exchange. What’s new is the magnitude of data being collected and the sheer breadth of its use.

The changing digital marketing landscape

By bringing all of this consumer data in-house, brands can not only target new prospective customers with confidence but also inform every touchpoint in the customer journey. Compiling robust first-party databases is a long-term investment of time and capital, but sets the stage for future marketing strategies while reducing dependence on third-party data sources. Moreover, because the origin and veracity of the data are known, brands may even improve campaign performance. We’re on the cusp of an explosion of data usage that will only grow, especially as AI evolves and can be used to create smarter databases over time.

What does this all mean for consumer data privacy? Whether or not the consumers who willingly share their data fully understand how their data is used remains a real question. While most companies will serve as good stewards of the data their customers share, others will fail to secure that data properly or sell it indiscriminately. In any case, consumers’ personal data is on track to end up in the hands of many more private entities, Big Tech’s privacy efforts notwithstanding.

For digital marketers — and pretty much every marketer aspires to be one given the acceleration of ecommerce brought on by the pandemic — access to consumer behavioral data will become even more critically important, going far beyond the ability to simply target advertising. Consumer data is what will make it possible to predict what their customers want to do, see, or buy next — sometimes even before they know themselves. In the very near future, whether or not marketers have access to high-quality consumer data will mean the difference between growing a healthy business and barely surviving.

This brings us back to Amazon, long the north star of first-party consumer data collection. Their domination of ecommerce has been fueled by boatloads of data collected as consumers browse Amazon’s endless inventory, compare options, consider alternatives, and make one-click purchases. Yes, Amazon uses its vast troves of consumer data to better serve its customers and has created today’s purest example of one-stop shopping. At the same time, Amazon has been accused of using the same data, on which they have a virtual monopoly, to compete against the very sellers who rely on its platform. These third-party sellers — along with regulators and legislators — have now taken notice, making some level of intervention now almost certainly assured.

Several years ago, I wrote that companies would need to become more like Amazon to stay competitive. What I didn’t foresee was that Big Tech would use the very real issue of consumer privacy to try to monopolize consumer data, giving them an outsized advantage in the new economy.

Rick Braddock is executive chairman for several data analytics companies, including Gravy Analytics and Video Storm.