Online buyers value privacy, but not much

Behavioral study shows price people put on privacy is lower than they say

When asked for surveys, most people say they fear identity theft, worry about web services their privacy for profit and swear they'd pay more for products or services from vendors who protect their privacy rather than exploiting it.

Very few behave as if they really mean it, however, according to a new study on the economics of privacy.

When given a choice, most people choose to buy from vendors who do not demand that they hand over phone numbers, email addresses or other personal information to complete the purchase, according to Study on Monetising Privacy , which is billed by its sponsors as the largest experimental study examining the behavior of consumers in realistic online buying situations.

The study was sponsored by the European Network and Information Security Agency (ENISA), a European Union government agency charged with investigating digital security and privacy on both individuals and businesses in the EU.

A PDF of the full study is available here.

In separate experiments, researchers from Cambridge University and German Institute of Research in Berlin sent 443 student volunteers to two web sites selling tickets at the same price to the same movie and asked for the same list of basic personal information (name, email address, date of birth).

When one site required customers to enter a cell-phone number, 83 percent of the students bought from the other site.

When the price at that site rose by half a euro (66 U.S. cents) but stayed the same at the privacy-unfriendly site, only 31 percent were willing to pay extra rather than buy from the other site and disclose their cell-phone number.

The researchers' conclusion was not the obvious – that a cell phone number is worth 66 cents.

Instead they concluded that consumers do value privacy in much the same way they value money. The majority, sometimes a substantial majority, value cash much more highly than they value individual bits of personal information.

The result was similar when the equation changed to focus on the threat that participants would be the victims of additional email advertising after their initial purchase.

When both sites charged the same for a ticket, but one said it would send ads to customers via email, 62 percent of customers bought from the site that promised no follow-up email ads.

When the site promising no email ads raised the price half a euro, it lost all but 13 percent of the available customers.

Privacy is valuable, but not as valuable as cash

The conclusion of all the experiments was that consumers do actually value their own privacy, to the point of putting a different price on different bits of data.

Consumers also value promises that a vendor won't bother them with follow-up advertisements after a purchase and on the need to receive those pitches later in exchange for a lower price.

Neither one is nearly as valuable as cash, however; a very small difference in cost justifies fairly large changes in behavior that would protect consumers' privacy.

The EISA report was designed to produce policy recommendations for the EU, so it's worth looking at just to get a heads-up on potential changes in EU rules on customer data.

Assuming Europeans are a similar-enough species to Americans that behavioral patterns are similar, the study's conclusions offer some good guidelines for U.S.-based commercial web sites as well:

Consumer behavior and the economics of privacy:

Consumers view their data as having value, and will conserve it where possible in the same way they do their money. When the product is the same but the price is different, however, the vast majority choose the lower priced option, demonstrating they value money more than privacy.

  • Regulatory frameworks (and corporate pricing policies) should allow companies to offer a range of tradeoffs to customers: higher cost for more privacy, lower cost for less.
  • In both cases web sites should make clear the data they demand, potential benefit of providing more private data and allow consumers to choose settings that reflect the value they put on both data and purchase price.
  • Regulations requiring that web sites exchange personal profiles of customers would make switching from one vendor to the other easier and less expensive for consumers, but it should be up to consumers whether or not their individual profile should be passed around. – Study on Monetising Privacy (paraphrased), published by European Network and Information Security Agency (EISA) 3/23/2012
Economics of privacy: experimental results
Provide more data Same price Market share Price difference Market share
Site A Demands cell number 17% - 69%
Site B No cell number 83% .5 Euro (66¢) extra 31%
Receive more ads Same price Market share Price difference Market share
Site A Will email ads 38% - 87%
Site B Won't email ads 62% .5 Euro (66¢) extra 13%

Read more of Kevin Fogarty's CoreIT blog and follow the latest IT news at ITworld. Follow Kevin on Twitter at @KevinFogarty. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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