Approaches to Data Monetization
Why marketplaces are tough and how regulatory reform might create data property rights.
This week I stumbled upon an app with an interesting idea.
The app, 4th Wall is monetizing data to donate the proceeds to charity.
The concept works pretty seamlessly:
Step 1: Download the chrome extension.
Step 2: Watch Netflix.
Step 3: Profit/Donate.
By cataloging what individuals are streaming on Netflix, Hulu, or Prime Video 4th Wall can sell that data to third parties and use the proceeds to donate to charities. To date, the charity has donated over 27,000 meals to food banks. That’s impressive and it’s exciting to charities exploring the power of data monetization considering people are currently giving away their data for free.
The concept of data monetization is a constant theme of this newsletter because data is at the foundational layer of the Web3 movement.
Data Monetization: Marketplace vs. App
There are dozens of companies tackling this problem, most commonly by attempting to create a data marketplace where individuals can buy and sell data. While a data marketplace may eventually be successful, creating a two-sided marketplace is incredibly challenging.
The Challenges of Creating a Two-Sided Marketplace
Just think of all that has to happen to create a successful data marketplace.
From the supply-side, the marketplace needs more than just a lot of data, it needs valuable data. This comes from thousands, if not millions of users, providing data that third-parties want and can utilize.
A two-sided marketplace also requires a robust demand-side – people willing to purchase the data. Data analysis requires thousands or millions of separate pieces of information to make accurate predictions. On top of that these data scientists or, more likely, companies will have to pay users a meaningful amount.
Classic chicken and egg problem.
Startups are attempting to build data marketplaces because marketplaces have network effects. Businesses with network effects have the potential to become natural monopolies and create hundreds of billions in value.
In contrast, 4th Wall isn’t creating a two-sided marketplace. The company's only ask is that users watch Netflix with a data tracker. 4th Wall aggregates and monetizes the data on the back end.
Data marketplaces like Ocean Protocol or Streamr are utilizing cryptonetworks to help kickstart data marketplaces. These protocols utilize a token to reward early adopters and provide a financial incentive to participate in the protocol underlying the data marketplace. These types of incentives can help expedite the marketplace dilemma.
For example, imagine a marketplace like Uber or Lyft – there are drivers and users. Getting a customer to trust driving around in a strangers car used to be a foreign concept. So, Uber and Lyft had massive rewards programs that would provide users $5 off each of their next 10 rides. The incentives allowed users to test out the product and eventually created a robust marketplace of drivers and wannabe riders.
Cryptonetworks have the potential to speed up the arduous lifecycle to creating a robust two-sided marketplace because they provide users equity in the protocol rather than reducing cash flows. The time to launch successful marketplaces will slowly decrease as individuals become comfortable with cryptonetworks and token-based economies.
Unfortunately, there will likely need to be some sort of regulatory reform to make data monetization a reality.
The Regulatory Approach to Data Monetization
Former presidential candidate Andrew Yang recently announced the Data Dividend Project (DDP), an initiative to help establish personal data as a form of property. The project seeks to establish and enforce data property rights under laws such as the California Consumer Privacy Act (CCPA), which went into effect on January 1, 2020.
Andrew Yang’s initiative focuses on challenging the data brokering industry.
Data brokering, the process of selling or reselling consumer data is a $200 billion industry. DDP is collecting the information and signatures of Californians that will let the DDP represent these individuals legally. The project plans to acquire as many signatures as possible and then collectively advocate for individual data rights including the right to be compensated for the use of personal data.
If the DDP can pay people for their data then other states might adopt similar regulations.
Society needs data property rights that encompass data, social graphs, healthcare, and more. New regulation enforcing data property rights has the power to change business models and realign incentives.
The importance of digital property rights cannot be overstated. If implemented correctly, data rights for individuals would be a defining moment of the 21st century.
Advancing Web 3.0 is a weekly(ish) newsletter about cryptocurrencies, decentralized finance (DeFi), and technologies that are shaping the next era of the Internet. Welcome to the bleeding edge. Welcome to Web 3.
About the Author: I’m Mason Nystrom, a Research Analyst at Messari covering companies and cryptoassets at the intersection of Web3.
Previously I worked for ConsenSys as a marketer focused on marketing strategy for ConsenSys and its portfolio companies. Prior to joining ConsenSys, I worked as a Business Analyst at Gatecoin, the first cryptocurrency exchange to list ether, Ethereum’s native cryptocurrency.
The views, information, and opinions expressed are solely those by the author and are meant for informational purposes only and are not intended to serve as a recommendation or investment advice to buy or sell any securities, cryptoassets, or other financial products.
I'd argue there's another way: implicit marketplaces that start when users have more control of their data as a byproduct of Web3 architectures. In this case, aggregating data into a 'marketplace' can be much more baked into the UX of just using web services, rather than a new app/product completely.
Society does not need rights, individuals do. Society cannot have rights because society does not exist; it is a meaningless abstraction that purports to stand for something greater than the sum of the individuals that comprise it. The same can and should be said for the greater good, the common good, and lesser variants fo the same sophistry. Rights--be they human or property--do not, will not, and cannot be created or protected by government regulation, only destroyed. Human rights and property rights are, in fact, co-dependent; one cannot be had without the other. Human rights without property rights is called slavery. These rights do not arise from acts of government or regulation; they are inherent in our nature as human beings of volitional consciousness whose only tool of survival is reason, To exercise our rational faculties we must be protected from government coercion, not subjected to it. The only way to secure our inherent rights is to protect them from government coercion, not grant government the power to regulate, which is the very instrument of coercion. Just look at anti-trust regulation. Monopolies cannot exist in a free economy. There is no lawful way (nor incentive, I might add) for one company to legally exclude another from competing with it. That requires, you guessed it, government regulation, which has a monopoly on force.There is a reason our most regulated industries--banking, education, healthcare, commercial aviation, broadcast media, cable media, mobile telephony--are monopolized by entrenched interests who offer little in the form of customer satisfaction The fact of the matter is that there is no such thing as a right to healthcare, because such a right enslaves those who can afford healthcare to those who cannot. Need is not a criteria for rights. The same goes for rights in data, social graphs, or other artifacts of our digital footprint. Rights provide only freedom of action, not implementation. That is why the Founders wrote of the "right to pursue happiness," not the right to happiness.