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Location based services: How much is privacy worth?

This article is one of a series that I'm writing which look at the question facing consumers and businesses alike.  Simply put:  How much is privacy worth?  This underlying question is ever more important in this era of privacy erosion.  From  computer cookies to satellite imagery to traffic cameras, information about us is being collected.  Critics voice privacy concerns whenever location based services ("LBS") or advertising is discussed.  However, as past consumer behavior and market research tells us, it's only just begun.
 
Before anyone gets too worked up about this trend let’s not forget that it's not new. Information has been collected at an ever-increasing rate for decades. Think about how many privacy impacted opt-in choices we make in life. It would be too easy to turn to the internet and write about Google search data or cookies that make our computer more internet friendly. Let’s skip computers for now and think about other activities where most consumers willingly give up privacy. Take credit cards for example. We get the convenience of paying (hopefully) our bills 30-45 days after purchase for no carrying cost. Float and convenience are pretty nice benefits but to get them we provide information about our buying patterns and life-style. I have a friend who refuses to use credit cards or cell phones because of his privacy concerns but it’s pretty clear he's in the minority. It’s gotten to the point now that you can’t even travel or book hotels without a credit card. Speaking of hotels, do you know how much information about you is in the magnetic strip of the room key card? How many of us casually drop it in the trash or leave it in the room upon departure.

Think credit cards are an anomaly?   Let’s look at loyalty programs. Corporations ask our permission to track what groceries we purchase, how often we fly, or how much we spend in their retail establishments. Our collective response:  Sure as long as we get a lower price on high margin grocery items, free flights or a feeling of exclusivity through achievement of "InCircle" status (with accompanying concierge services).  Consider Starbucks and their debit cards. Do we really need a card to buy a cup of coffee or a latte? Even if we occasionally go out without any cash requiring the convenience of plastic, why would we willingly give up our birth date? Because we get a free cup of coffee!  Starbucks gets demographic information about the age of their customers using debit cards and we get a cuppa Joe. It seems pretty obvious that this is really just a cost/benefit analysis that we are making and historically the benefits have been sufficiently high.

Telematics navigation services have become common place. Having this service is amazing. Now that I’ve traded in my 15 year old Lexus for a new Audi I can’t imagine going on road trips without it.  The trade off?  Data about my location and destination is being continuously sent by an embedded GPS chip. How do more sophisticated navigational services provide real time dynamic routing? They have enough vehicles on the road with OnStar or the equivalent feeding location over enough intervals to allow predictive technology to do it's thing. Think this is an anomaly? Think again. It’s the tip of the iceberg. Research is actively going on today that will provide sensor technology on roads that will communicate with vehicles to increase driver safety and improve traffic flows. These systems also include automatic vehicle plate recognition technology captured through closed circuit TV. How much choice will we have? Unclear to me but that question isn’t slowing the research effort.
 
Let's continue to use the example of navigation services. I’ve taken several car trips up and down the west coast in the past few months. Searching for nearest restaurant, gas station or hotel to my location seems well worth my lost privacy. Why not provide information about which gas stations have the best prices? Better yet let’s look at hotels and restaurants. They both have low variable costs and availability that expires daily. Fixed costs have to be covered so any room/table that is empty has significant opportunity cost.  That begs for flexible variable pricing. I’ve already provided my location through the navigation system. A price incentive to get me to eat or stay at a particular place is good business. My decision to forfeit privacy gets rewarded and the local business that is forward thinking gains market share.  That's the essence of location based advertising.
 
The whole point of this lead-in article is to show that historically privacy is more of an academic argument and not supported by the real world. GPS enabled chips are in the smart mobile devices we carry with us constantly. We have the choice whether or not to allow this information flow either through opt-in choices or the on/off button  How much we benefit will dictate how much privacy we forfeit and how many will opt in but it’s just a matter of time. Why?  Because data is valuable and this growing data stream is richer and more real time than ever before.  That will allow even greater personal benefits to be offered which will make older loyalty programs pale by comparison.   The voices raising concerns about privacy will likely continue to get louder. And the impact of location based services will become compelling enough that we the consumer will adopt to receive the benefits wrapped about them.  Next up:  What's happening in LBS.


Disclosure: I am long GOOG, TSYS, ICLK, TNDM.