When companies know too much: UW researcher explains digital market manipulation

Ryan Calo

Ryan Calo

Earlier this month a certain daily deals site sent an email to Gmail users on its list. Gmail had rolled out a “promotions” tab to filter marketing emails out of users’ new “primary” inboxes. This company, like a thousand others, wanted back in.

Just drag and drop our messages into your “Primary” tab, urged the email, complete with cute colors and screenshots.

I smiled, wondering how many nanoseconds it took to filter me out as a Gmail user. It’s obvious enough based on the email address. But what else might they know about me? What I buy? Where I live? Might they have a way to figure out my son just turned one?

No thanks, I thought, and closed the email. You have enough going for you already.

The back and forth between companies and consumers has always been a kind of power play. University of Washington School of Law researcher Ryan Calo believes that in the age of big data, companies are gaining what — if left unchecked — could become a harmful advantage. In a new paper, “Digital Market Manipulation,” he articulates why.

Marketers have used systems for decades and gathered personal information about consumers forever. But it’s the confluence of systematization and personalization, enabled by the scale of digital technology, that’s making us exceptionally vulnerable, Calo argues. Look where the interests of companies and consumers don’t match and you might find overreach regulators can’t ignore.

Late last year The Wall Street Journal caught Staples in the act of charging different people different prices for the same products online. About 90 percent of the variance could be accounted for by geography, but not the way, say, gas prices vary from neighborhood to neighborhood. If you lived in the vicinity of several of its competitors, Staples.com might charge you $14.29 for a nice stapler. If you didn’t, it might charge you $15.79. Funny thing is, people shopping the site from areas with a lower median income tended to see higher prices. And of course, shoppers had no idea.

All that’s legal, but when the Internet is such a democratizing force, is it OK? In the digital marketplace, everything we do is tracked and traded, and every storefront can be customized for every user. What’s to stop a company from bringing something like income or race into the equation? What’s to stop any company from doing what any competitive marketplace demands — milking their data (our data) for all they’re worth?

Talking to Calo made me look at our love/hate relationship with digital commerce as more than just a question of what feels creepy. There’s a serious imbalance going on here. Companies have all this new information and all these new ways to exploit it. And consumers have, what, our wits?

Monica Guzman

Monica Guzman

Calo, who came to UW from Stanford last year, specializes in privacy law. He’s wanted to take a closer look at the ways companies use our digital footprints for years. Like so much in technology, the company-consumer relationship is changing too fast for us to understand it, let alone make the right set of policies to regulate it. Many of the scenarios Calo talks about in his paper haven’t happened yet (imagine companies altering an avatar of their spokesperson to look like your profile picture). But the seeds, he says, are here. To have any hope of keeping up, policymakers have to appreciate how much more powerful companies armed with our data have become.

There was a striking New York Times story last year about Target. A Target statistician had found patterns in its massive collection of customer data so strong that he could predict not only if a customer was pregnant — and therefore ready for those diaper coupons — but even her due date. When Target found out what their statistician was telling the reporter, the company told him to be quiet. But too late.

And that’s a problem, too — all this damned uncertainty. There are privacy policies and terms of service. But who are we kidding. None of us really knows what information companies have on us, who they’ve sold it to or what they’re doing with it. We just suspect, more and more, that it’s something we wouldn’t like. Being disadvantaged by our own data is concerning enough, Calo argues. Not knowing how or when or by whom weakens a key ingredient in a fair market — a consumer’s ability to act in her own best interest. In academic terms:

“…The concern is that hyper-rational actors armed with the ability to design most elements of the transaction will approach the consumer of the future at the precise time and in the exact way that tends to guarantee a moment of (profitable) irrationality.”

Policy that bans certain techniques won’t work, Calo said. It leads to unintended consequences. But realign the incentives — what if sites were required to offer a paid version of their interface that grants more privacy controls? — and you can begin to restore the balance of power.

For now, those daily deals can come into my promotions tab, and I can look at them when I’m good and ready.

Mónica Guzmán is a freelance journalist, speaker and award-winning digital life columnist for GeekWire. You can find her tweeting away @moniguzman, subscribe to her public Facebook posts at facebook.com/moniguzman or reach her via email. See this archive of her weekly GeekWire columns.

  • Jim Beam

    …I shop on one site for shoes regularly and follow price. When I visit a second site to follow the same items, the first site comes back with significantly reduced prices that then revert to higher prices if I don’t visit the second site.

    I’ll take it.

    • http://moniguzman.com Monica Guzman

      Oooh. What sites do this? Interesting. Also: Calo concedes in his paper that the same practices that can allow a kind of exploitation of consumers also can allow for serious perks, like this. Lower prices, more customized experiences … we’ll all take those.

      • Jim Beam

        The point is, some companies are very sophisticated about mining the data to improve competition.

        • http://moniguzman.com Monica Guzman

          Yes, and competition very often works in the consumer’s favor.

  • http://www.crownsocial.com/ Zach Huntting

    Great article Monica!

    • http://moniguzman.com Monica Guzman

      Thanks :)