Home PublicationsCommentary No, The Data Economy Is Not A Barter Economy

No, The Data Economy Is Not A Barter Economy

by Hodan Omaar
People bartering.

Analogizing data to other things is a popular activity. Depending on whom you ask, data is the new oil, gold, and even bacon. While it is certainly true that data has become invaluable, these analogies are fundamentally flawed. This matters: ill-fitting conceptual frameworks can lead to false conclusions. 

The latest bad take comes from anthropologist and Financial Times U.S. editor-at-large Gillian Tett. She recently argued that for consumers to give up their data in exchange for free Internet services is just like a barter economy in which “berries might be swapped for meat.” 

The barter economy analogy is wrong for a number of reasons. First, Tett fundamentally misunderstands the nature of data. Unlike oil, gold, bacon, or most other goods that one might trade in a barter economy, data is non-rivalrous: Many different companies can collect, share, and use the same data simultaneously. If a person exchanges a bushel of apples for a basket of bananas, they no longer have the apples to trade with anyone else. By contrast, if a person shares their preference for bananas over apples in order to gain access to a website, they still have the same amount of data after the exchange as before. They could give the same piece of data to gain access to an infinite number of other online services because the exchange of data for services is not a zero-sum game; companies and consumers mutually benefit from sharing data.

Second, Tett argues that because consumers do not pay for free online services with money, but rather “pay for these services with their data,” this activity “goes entirely uncounted in these statistics that the economists collect.” This misunderstands how online services turn user data into economic value. Ad-supported digital services turn data into value by functioning as two-sided markets that connect consumers and advertisers. Users get access to a free service and advertisers get access to an audience for its ads. Economic activity is generated when a user buys the product being advertised, which they pay for with money, and is therefore very much accounted for in the traditional view of the economy. This is no different from how advertising supports free broadcast television. Traditional measures of the economy assume the costs for these paid ads show up in the final price of the goods consumers purchase.

Finally, Tett argues barter economies often have asymmetries of information that can lead to exploitation. Consider a kid in a playground who is offered a toy car in exchange for their baseball cards. If the kid doesn’t fully appreciate the value of their baseball cards—or indeed, their value relative to the toy car—they could easily fall for a rotten deal. According to Tett, tech companies love to exploit this opacity in the barter economy, and consumers are getting a raw deal by trading their data for services. (The word barter actually comes from the old french word barater, which means to cheat or deceive.)  

But the idea that Internet companies are exploiting consumers by offering free services in exchange for data is wrong. On the contrary, for most commercial services, consumers are better off sharing data in exchange for a free service. In a 2019 paper on consumer choices from researchers at the National Bureau of Economic Research, people said they would have to be paid $17,500 to forgo their use of search engines for a year, $8,400 to forgo email, and $3,600 to go without digital maps. The fact is, companies cannot provide goods or services without earning income, which can either occur through direct payments from customers or indirect payments from advertisers and sponsors. The alternative to companies using consumer data to monetize their services with online ads is subscription models that don’t rely on monetizing data. However, a shift toward subscription models would hurt many low- and middle-income individuals who would be forced to pay for online services that are currently free such as search engines, social networks, and mobile games.

Tett is right about one thing. Using the right conceptual framework to understand data is important if policymakers are to effectively frame and legislate data-related issues. But conceptualizing the data economy as a barter economy is not productive. Enacting laws and regulations based on this misconception would harm the digital economy and make the lives of digital consumers worse.

Image credits: Treehugger.

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