By TAP Staff Blogger, TAP
Free services are ubiquitous on the Internet — from social media
networks to games to mobile apps — but what is the consumer cost to
access that content?
Free content becomes problematic as it relates to consumer privacy
protection because courts don’t take complaints about such content as
seriously since they don’t actually cost consumers money. In one recent
case, the California Supreme Court found that consumer protection law does not apply to online businesses.
However, what courts and policymakers do not take into consideration is
the hidden costs of free products, mainly surrounding the personal data
disclosed in order to access them.
A forthcoming paper in the UCLA Law Review, “The Price of ‘Free’: Accounting for the Cost of the Internet’s Most Popular Price,” by Berkeley School of Law’s Chris Hoofnagle
and University of Washington’s Jan Whittington discusses these issues.
Using a transaction cost economic (TCE) approach, the scholars look at
“free” transactions that require personal information to uncover the
true costs. The authors suggest that some information-intensive
companies misuse the term “free” to promote products and services that
have hidden, non-monetary costs.
Current regulation allows companies to collect valuable personal information
before the consumer signs up for a service. Companies then monetize
that data once collected. This is in spite of the fact that the product
or service was promoted as “free” by the company. Data is the currency
in all cases, whether the consumer is asked to divulge that information
before trying a free product or, in the case of social networks, data is
what fuels the business itself.
The paper also explores what these “costs” mean for consumers. These
include the targeted advertising that stems out of the data disclosure,
the cost to switch to the paid version or an equivalent product, and the
time spent monitoring the actions of the company. Some companies
under-invest in information security, increasing the potential hazards
and transaction costs to consumers, should the data be leaked.
Hoofnagle and Whittington suggest policy reform that would place data
security risk more firmly in the hands of businesses, going beyond the
traditional transparency and accuracy requirements that privacy law
suggests. The two authors recommend eliminating avoidable costs that
arise for consumers when asked to provide personal information and
requiring third parties interested in accessing this data to obtain
consumer opt-ins through full disclosure with privacy policies.
TAP Scholar Chris Hoofnagle is director of the
Berkeley Center for Law & Technology’s information privacy programs
and senior fellow at the Samuelson Law, Technology & Public Policy
Clinic. He is an expert in information privacy law. More information
about his background and academic research is available on TAP’s Chris Hoofnagle page. Additional scholars with expertise in privacy and security, and a select list of research papers are available on TAP’s privacy and security page.