What price privacy?

When someone whose firm is an investor in high profile social networking ventures such as LinkedIn and Foursquare suggests personal data might have commercial value there is bound to be some blowback. But he might just be on to something.

Fred Wilson is one of the most outspoken figures in the technology venture capital community, so it should come as no surprise that he has ruffled a few feathers. However, expressing the view that there is money to be made from exploiting user concerns about the amount of personal information that is revealed to location-specific services, for example, has landed him at the centre of a minor virtual storm.

Speaking at the Geoloco conference in San Francisco last week, Wilson was quoted as saying that location-based services had one major weakness - privacy. "The challenge for large social networks is to undo permissions that they have already given. Meanwhile, a start-up is at an advantage as it can build something from scratch that allows the user to predefine the data terms for sharing."

Wilson acknowledges that there is a need for user education and control. "When you reveal your specific location, it is very important that you have control over that. There are business opportunities in privacy-related services. The challenge is to get someone to pay $2-$10 per month to ensure that sort of premium privacy."

That might sound like anathema to many, but it sounds less far fetched when applied exclusively to start-ups rather than services such as Facebook that already have hundreds of millions of users signed up to specific permissions. While large social networks might have trouble revoking the privacy controls users are used to, that would not be a concern for businesses operating a pay-for-privacy model from the outset.
Users are already ambivalent about the importance of security if recent stories concerning Facebook are anything to go by. Last month a report issued by ForeSee Results and the American Consumer Satisfaction Index gave the site one of the lowest levels of customer satisfaction among all businesses measured (placing it on par with airlines and cable companies) while in April, a study by researchers at UC Berkeley and the University of Pennsylvania found that younger adults wanted increased privacy, even with social networks encouraging them to share more online.

In May, Facebook added security tools and simplified its privacy settings, and has just signed up its 500 millionth user.

TheAtlantic.com editor Niraj Chokshi reckons that if a start-up offered an innovative free service with a fee for privacy, its unique offering could lead to rapid growth. Once any scale is achieved, concerns over paying for privacy take a backseat to the practicality of using a popular service. The key question is whether a start-up with a pay-for-privacy model could expand fast enough to prevent losing its business to a free or ad-supported competitor.