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How much is your information worth?
Upon reading the linked article, the first thing that I noticed, 11 words in, was the existence of a social network called Ello. In actuality, I had
come across the brand a few days earlier, but I had dismissed it as a random name. Yet there I was reading about it. The gist of this new
social network is that because of some controversy on Facebook, there was some exodus of people to Ello. What Ello had that Facebook
didn’t is a lack of ads, a promise that your information isn’t sold to ad companies, and freedom to use a pseudonym (which, if you think about
it, is impossible in a system that profits off of selling information).

How then does Ello profit, or at least sustain running costs? Confused as I was, I searched for something more and came up with this:
Ultimately you will be able to pay for customizability and personalization, much like some free mobile games or online games. I tried to frame this
transaction in terms of an auction. In this auction there are many buyers who fall into two categories: either a social network user or an
advertiser, and each bids for the product, which is user information.


Graphic 1                                 Graph 1

Currently the situation is rather uninteresting because there is only one item being sold. We can use the same auction method that we use to
find market clearing prices to find a price at which one buyer’s payoff becomes negative. Thus whichever buyer has the higher true value will
buy all the information. We observe in the real world that neither social networks has a monopoly. In order to break out of this solution, I split
up the item being sold into a large number of pieces, representing different people’s data. The advertisers value each person’s information the
same. The social networkers’ values for each person’s information is as much as that person values his own information. Therefore the
social networkers buy each information that is valued more than some value V that advertisers value information, and otherwise the
information is bought by advertisers

Table 2               Graph 2

One of the assumptions made here is that information is always sold to someone. This excludes the case in which someone uses Ello, but
doesn’t buy any of the add-ons. This would be represented in the one item (aggregated information) graph as a decrease in the value of the
information for social networkers. A third scenario depicts 2 buyers and 2 sellers. The buyers are still advertisers and social networkers. The
sellers are Ello and Facebook. The matching is set to advertisers buying from Facebook, and social networkers buying from Ello. The values
of each set of information depends on the user base of each social network.

Table3                            Graph 3

In the extreme case even people who don’t value their information more than advertisers do could flood Ello. We see that this is
unsustainable, unless the people who do value their information more than advertisers do, value their collective information more than how
much advertisers value all information.

Of course this post makes a lot of assumptions and ignores many other factors that exist in the real world. For instance, users of Ello aren’t directly buying their information. They are really purchasing something seemingly unrelated to their information, but is necessary in order to sustain a social network that doesn’t sell their information. The users may also value what they are explicitly purchasing more than just their information.  All in all, the takeaway from this post is that in order for Ello to be sustainable, users have to value their information more than advertisers do.


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September 2014