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Social Network Services: Competition and Privacy

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Social Network Services: Competition and Privacy Social Network Services: Competition and Privacy Claus-Georg Nolte, Jonas Schwarz, Christian Zimmermann University of Freiburg, Institute of Computer Science and Social Studies, Department of Telematics, Freiburg, Germany {nol t e, schwarz, zi mmermann}@ii g. uni -f rei burg. de Abstract. Social Network Services (SNS) business models highly depend on the gathering and analyzation of user data to obtain an advantage in competition for advertising clients. Nevertheless, an extensive collection and analysis of this data poses a threat to users’ privacy. Based on an economic perspective it seems rational for Social Network Operators (SNO) to ignore the users’ desire for privacy. However, privacy-friendly services might have the potential to earn users’ trust, leading to an increased revelation of personal data. Addressing these issues, we examine the existing privacy problem in SNS in the context of competition between SNO to investigate whether competition tend to enhance user privacy or whether it is the root of its violation. Therefore, this paper investigates the interconnectedness of the market structure and privacy problems in SNS. After analyzing the users’ and the advertisers’ side of SNS, their competitiveness and its influence on user privacy are examined. Keywords: Privacy, Social Network Services, Competition, Multi-Sided Platforms, Two-Sided Markets 1 Introduction At least since Facebook was published in 2004, social network services (SNS) have constantly been on the rise and consume evermore of our daily online time and, thereby, of our personal data. Moreover, since the beginning of the smartphone age SNS have even been following us from our desktops to every place we go. They demand us to share every bit of our lives with our friends within the network and, thus, with the network itself. Consequently, Harvard Law professor Jonathan Zittrain deduced in 2008 that this technology threatens “to push everyone towards treating each public encounter as if it were a press conference” [1]. This thirst for user data can be explained with the business model of SNS which heavily depends on gathering and analyzing user data to deliver targeted advertisements [2]. This extensive collection and analysis of user data poses a severe threat to users’ privacy. Hence, Margo Seltzer, professor in computer systems at Harvard University, sets it straight at the Davos Forum in 2015 stating that “privacy as we knew it in the past is no longer feasible” [3]. Disclosed data itself is necessary for SNS businesses to improve their targeting of advertisements and thereby obtain an advantage in competition for business customers, 13th International Conference on Wirtschaftsinformatik, February 12-15, 2017, St. Gallen, Switzerland Nolte, C.-G.; Schwarz, J.; Zimmermann, C. (2017): Social Network Services: Competition and Privacy, in Leimeister, J.M.; Brenner, W. (Hrsg.): Proceedings der 13. Internationalen Tagung Wirtschaftsinformatik (WI 2017), St. Gallen, S. 822-836 822 which demand for precisely targeted advertising. Hence, users’ demand for privacy- friendliness only becomes important insofar as it is helps providers to gain trust and to get users to reveal even more personal data [4]. Thus, it seems not an irrational ignorance of users’ desire for privacy by the providers but a rational choice in an economic competition not to prioritize this desire. The paper takes an economic perspective on the present privacy problem in SNS to investigate whether competition between providers tends to enhance user privacy or whether it is the root of its violation. For this purpose we investigate privacy in those business focusing on the market structure, thereby taking into account that SNS constitute multi-sided platforms (MSP) [5]. Analyzing the users’ and the advertisers’ side of SNS, we compare their competitiveness and its influence on user privacy. Therefore, we build upon insights from theoretical literature concerning MSP, behavioral research papers about SNS and privacy, as well as market evidence. In the following we will first state the essential definitions for our investigation in section 1.1 and further give a brief overview of the related literature in section 2. Thereafter, we start with the analysis of the influence of SNS competition on user privacy, firstly by examining the characteristics of the goods which are up for rivalry on the different market sides in the SNS environment, and secondly, by investigating those goods and competitions in detail considering appropriate findings from scientific literature (see section 3.1). Thirdly, we will analyze their impact on user privacy in section 3.2 and following. Finally, we will discuss our results, match them with empirical evidence (see section 4) and give a summary of our paper in the conclusion. 1.1 Essential Definitions As mentioned above, we aim at investigating the interrelation of the market structure in social networks services (SNS) and user privacy. Hence, there is a need to clarify the term and interpretation of SNS. According to the updated definition of Kane et al. [6], which builds upon the earlier characterization of Ellison [7], SNS contain the following features: “users (1) have a unique user profile that is constructed by the users, by members of their network, and by the platform; (2) access digital content through, and protect it from, various search mechanisms provided by the platform; (3) can articulate a list of other users with whom they share a relational connection; and (4) view and traverse their connections and those made by others on the platform” [6]. In the following we use this definition as a basis to describe and understand SNS. However, we add the restraint that the main revenue source of the SNS should be advertising to ensure the multi-sided platform character of our investigation object. Hence, the scope of our analysis contains SNS such as Facebook, Google+ and Twitter. Moreover, we define the term of Social Network Operators (SNO) as companies, which "provide the underlying basic services and infrastructures, needed by users to interact with each other" [8]. In the case of Facebook, the website facebook.com constitutes the SNS while the company Facebook Inc. is the SNO. Further, the term multi-sided platform, also known as two-sided platform or market, requires a clear definition, too. Therefore, we draw on the work of Staykova and Damsgaard [5]. According to their research, MSP (1) enable direct interaction between 823 two or more participants affiliated to them; (2) are containing homing and switching costs for those participants; and (3) include direct and indirect network effects [5] (see Fig. 1). In our setting, homing costs are the costs in money, effort, time and other aspects of entering and using an MSP. Moreover, switching costs are similar onetime costs that occur if participants switch from one platform to another. Additionally, network effects occur when the value of the platform or its product for one participant is influenced by the total number of participants (of the same or another side). Those effects can be both positive or negative and are seen as a key aspect of MSP [9]. Figure 1. MSP model, including platform participants (I&II), same-side network effects (1&4), and cross-side network effects (2&3) [5]. The privacy definition used in this paper builds upon Westin's definition of privacy. Hereby, he defines it as "the claim of individuals, groups or institutions to determine for themselves when, how, and to what extent information about them is communicated to others” [10]. For him, “this, also, involves when such information will be obtained and what uses will be made of it by others” [11]. In the context of SNS, we consider privacy as the capability of SNS users to control their personal data and its collection, aggregation, analysis and possible transfer by the SNO and third parties, as well as users' ability to optimize the amount of data disclosure and its security against misuse with respect to their preferences. The legal definition for personal data is provided by the EU data protection directive as “any information relating to an identified or identifiable natural person”.1 However, for our case a broader classification is useful. Drawing from Nolte, we define personal data as “any data revealed by user action, starting from simple likes, to direct personal information, and even analysis of users click and browse behavior” [12]. This diversification is necessary to capture that by the aggregation and combination of meta- and behavioral data, inferences can be drawn. Those can constitute sensitive information for users and sometimes even personal data in the definition of European data protection law [13]. Given this definition, it is obvious that the data-centric business model described above constitutes a severe threat to users' privacy. 1 EU Data Protection Directive (95/46/EC), 1995. 824 2 Related Literature User privacy in SNS is a widely examined and discussed issue. Basically, the topic can be divided into two main research streams: Behavioral and user-focused research as well as provider-focused research. The former offers the seemingly contradictive result that users on the one hand care for privacy and try to preserve it with privacy-seeking behavior [14], but on the other hand do not act privacy-aware and seemingly carelessly disclose personal data when using Internet services [15]. Those findings led to the definition of the so-called “privacy paradox” [16]. Furthermore, provider-focused research has shown that privacy is not a major market factor in the competition for user attraction although users estimate it of high importance for them [17, 18]. However, the question wherefrom this dynamism arises which drives SNS providers to claim more and more user data and thereby restrict user privacy is still open to research. Different forces interact which each other and the participants in an SNS. Most of those forces have direct or indirect influences on privacy [19].
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