The Evolution of the Data Driven Economy

Today’s online experience bears little resemblance to what many of us remember from the early 1990s. Back then, you’d typically pay $19.95 a month to connect your desktop computer to the internet via a slow dial-up modem. Your email address was a random set of number and letters, assigned by your internet software provider. Most high quality content was secured behind a paywall, and the limited free content that was available usually wasn’t very good. Online advertising was completely indiscriminate, dominated by obnoxious practices like dancing babies and popups. Overall, being online was expensive, impersonal, and not terribly satisfying.

Contrast that with your everyday online experience today. You’re sitting at Starbucks, using their free wifi on your smartphone. You browse a few news and entertainment sites, reading as much free content as you like. The ads you see as you browse the web seem designed just for you. You check your free Gmail and social media accounts, perhaps while streaming some free music, and the sidebar ads may reference products you’ve mentioned in an email or social post. You do some shopping on your Amazon account, and you’re given suggestions to buy things that you just looked up a few days ago, or things to supplement a recent purchase. If you’ve got a bit more time to kill, maybe you watch a few free videos or play some free games.

So what exactly has changed? How did we go from paying for everything to having the world at our fingertips, all for free? The answer is simple—unlike the pay-to-play environment of decades past, today’s digital economy runs on data.

Advertising: The force behind the modern internet
Essentially, the evolution of advertising has made today’s “free” internet possible. In the early days of the World Wide Web, advertising was nothing more than irrelevant noise, which consumers quickly learned to tune out. This drove marketers to develop more sophisticated technology, which allowed them to deliver ads that are relevant, interesting, and valuable.

Today, consumers spend increasingly more time online and connecting with more digital channels. This gives marketing teams more opportunities to collect and mine consumer data, and use it to develop online behavioral advertising (sometimes also called “interest based advertising” or “relevant advertising”). This highly sophisticated advertising uses information collected across multiple websites in order to predict user preferences and show ads that are more likely to be of interest to the user. Consumer data is also useful in informing strategy for one-to-one communications, like email, to show their customers that they are listening and understanding their problems, needs, or wants.

As an example, surveys that you take before or after a purchase are important to companies, because customer data can help to inform better practices in the future. Well-designed surveys are valuable loyalty tools, as they encourage customers to return time and again. I see this everyday in my life when I buy things on Amazon. Within a few days after a purchase, the site will follow up to see if I liked the product, did it meet my expectations, etc.

If marketers can determine what a user wants to see online or in an email and deliver it seamlessly, then they have succeeded. We live in a fast-paced mobile society where the average user wants gratification with one click. Data mining can provide insights about demographics or individual users, which can help online marketers and data purveyors deliver information that a user might not even have known they were looking for.

Data driven marketing is big business
How much incremental value does data driven marketing add to the US economy, and how much of that value can be pegged to the flow of consumer data between companies? The Data-Driven Marketing Institute (DDMI), an initiative of the Data and Marketing Association, did a ground-breaking study quantifying the value of the Data-Driven Marketing Economy (DDME) in 2014.

The study determined that, in the US, data-driven marketing is a $156 billion industry and contributed nearly 676,000 jobs that could not be performed without individual-level consumer data. To put this in perspective, that’s nearly half of total US expenditures on marketing and advertising services (estimated at $292 billion annually), more than half the size of the entire internet ecosystem (estimated at $300 billion), and more than two-thirds the size of the entire ecommerce market.

Consumers also reap the benefits of data driven marketing
Economic impact aside, responsible data driven marketing is a force for good. One of the clearest benefits to consumers is that advertising—especially relevant advertising—helps keep a myriad of content and services on the internet free. Ad targeting commands higher prices, which in turn helps content providers offer new or better content to consumers (for free) and provides content owners with more sustainable business models.

Another benefit of interest based advertising is that the online experience becomes more customized. Today’s consumers have high expectations, and are turned off by advertising that is not relevant to them. While another ad for teeth whitening is an irritant that may actually drive consumers off your site, highly relevant ads for flights to the consumer’s hometown or a set of outdoor furniture they’ve been searching for can create a sense of being known and understood on an individual level.

Behavioral tracking shouldn’t be feared, but rather, embraced. Data collection can simplify and enhance a consumer’s online experience. By utilizing gathered behavioral data in a strategic manner, online retailers can put the power of the online tracking to work for their consumers.

Safe data collection is critical
The key to maintaining the benefits of online behavioral advertising is for the online industry to balance consumer privacy with the advantages that data collection and use provide. The industry has worked hard to achieve such balance by committing significant resources to provide more transparency and choice to consumers regarding the collection and use of their data for online behavioral advertising. For example, as a member of The Data & Marketing Association’s (DMA) Ethics Committee, I’ve been involved with creating Guidelines for Ethical Business Practice, which provide generally accepted principles of conduct for individuals and organizations involved in data-driven marketing. These guidelines reflect DMA’s long-standing expectation that its members, and all marketers, will maintain high standards of ethics and responsibility with respect to consumer relationships. The Guidelines for Ethical Business Practice also serve as a standard to which direct marketing promotions are compared in the event of complaints.

Maintaining safety and privacy in today’s data driven world is a unique challenge, but one that is critical to the future success of data driven marketing. We’ll explore this idea further in a future post.

Choose a partner that understands and respects data
Respecting privacy, safeguarding data, and enabling trust is core for us here at Return Path. Our business depends on the trust of thousands of companies and millions of people. Violating that trust is simply not an option. We know that meeting requirements of the broad and ever-changing regulatory landscape is challenging for brands. Finding tools and a proven methodology, along with a trusted partner to help manage your program, can be an even bigger challenge.

Our in-house data and privacy expertise runs deep, the result of over two decades of ISP and ESP leadership, and innovation in an industry we helped create. Monitoring for 80+ mailbox providers and protecting over 2.5 billion inboxes daily is no small feat, but we do it with the same passion we had when we started in this industry. It’s expertise you can count on.

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