Privacy and Loyalty Clubs


This post is a part 2 of sorts to It’s [None of] Your Business posted on NoJitter.

That was a tricky post because there is so much going on, and it is difficult to talk about it because there is such a wide gap in what people realize is going on. That article had lots of links trying to weave together a story. In a nutshell it says the tech is changing faster than the laws and the current cash crop is your information. Organizations can turn your information into cash, and they effectively buy it from you at wholesale by trading trinkets. The most common trade these days seems to be free apps with onerous end user agreements that no one reads that makes their activities perfectly legal and in fact transparent.

In addition to the NoJitter piece, we also did a podcast at UCStrategies on privacy here. Both the article and the podcast were stimulated by the Carrier IQ news.

The additional thoughts is this all really started with loyalty programs. Loyalty programs have been around for a long time, but since the 70s have exploded in popularity. They are the pre-web version of what is happening at Google and Facebook.

The concept of the Loyalty program was simple – a means to identify and reward your best customers. But that’s not what they are any more.

American Airlines changed everything with the first airline frequent flyer program. It was, at one time, a text book example of how to use IT to gain a competitive edge. It is one thing to identify frequent customers and give them gifts or “rewards,” but another to really harvest the information. It took United half a year just to get to the rewards part. You see back then, we didn’t give the airlines all the information we do today. They had no idea who their best customers were, who their repeat customers were, or what the difference was between them. By getting customers to self identify, they were able to figure out patterns. First it was patterns about their flights – which routes served frequent flyers and which attracted mostly tourists. But the gold was in learning more about their customer demographics. They learned all kinds of behaviors and preferences – effectively a marketing roadmap.

The cost of these rewards was trivial. They got tons of valuable information for pratically nothing. Frequent flyers had to fly lots of miles to get back highly restricted low priced seats. It was a great trade. Even better news, the airlines found these programs trumped low rates in terms of customer loyalty. Still even better, it turned out other firms wanted to buy the information.

AA had a huge benefit for a while, but as with all IT services, as they become ubiqutious they diminish in value. Now every airline has a Frequent flyer club. I think the programs are more of an onerous liability now than an asset, but no one is willing to get rid of them because they are effectively required by customers. They have become a cost of doing business.

Loyalty programs are not just for airlines. They are everywhere. The grocery store gives me .10 off a product to get me to self identify. They had the ability before to analyze shopping carts -they could see a correlation between hot dogs and buns. But now with these cards they can analyze households and see patterns like like hot dogs and antacids purchased the next day. They can sell this information to the antacid people that then decide to feature hot dogs in their ads. The more insight into the customer, the more targeted the marketing. This is valuable stuff.

The airlines and other loyalty programs didn’t stop with their own purchases. They wanted to learn even more about their customers. The loyalty credit card solved that. Again, for a fairly low price, they get consumers to share all kinds of information about their purchasing habbits. Now they know what types of stores and restaurants their customers prefer, how much they are spending, and in some cases what they are spending money on. Valuable information.

So now the technology has changed and now we leave a digital trail of our interests, purchases, and activities. It some ways all this demographic information is easier to get then ever before. Facebook started just analyzing the information their subscribers provided. The Facebook Like button on other sites now act like the credit card and reports back all kinds of information about where their subscribers go (even if you don’t press the Like button). Google reads your mail to figure out your interests. Even the lowly supermarket wants more information than their loyalty cards. Check out this new shopping cart that tracks your moves:

The mini device, equipped with a GPS, plugs into the supermarket’s mainframe computer, making it possible to pinpoint, within inches, exactly where the shopper is, all the while building up a personal shopping profile. In return for this behavioral data, the shopper is promised specially customized discounts, available only to them. All that’s required is a quick swipe of a loyalty card on a display…it will also open up entirely new revenue channels: retailers will be able to sell their customer insights to manufacturers, and when online, wireless and in-store shopping carts are linked, it’s entirely likely that each platform will present new advertising opportunities.

The smartphone, though, is the motherlode. It has all your information – friends, emails, location, photos, apps… How to access it? That’s what Carrier IQ was all about – it had access without consent. But consent isn’t hard to get. Next time you install an app – look at the permissions it requires – why does an ebook require location awareness? Why does a travel app (flight and gate info) require access to contacts? Why is the app free?

This is a big problem for corporations that are being faced with BYOD. Employees insist on using their own devices and insist on storing on them corporate secrets. The IT manager that says NO, runs the risk of unemployment.  It is difficult to argue confidentialty, because few agree/acknowledge it is a problem. At some point, I expect there will be a major backlash against BYOD. Or perhaps it will be virtualization that solves the problem.

Apple left their top secret device in a bar – that was difficult to understand, but it was at least missing. Most of us don’t know when we’ve been hacked or how much of a trail we are leaving. But our corporate secrets may indeed be much bigger than a product protype and are risk of privacy invasion is much broader than a bar.


Dave Michels