The good news first: Users stand to benefit from the additional services offered by large online platforms, at least when convenience is more important to them than privacy. The bad news for websites and merchants that adopt such services is that revenues may decline after adoption, yielding a 'data-sharing-dilemma': 'They may have short-term incentives to adopt a social login but suffer negative economic impact in the long run', write information system experts Professor Jan Krämer, Dr. Daniel Schnurr and Dr. Michael Wohlfarth in an article for the MIT Sloan Management Review (the article is free to all visitors on March 5 and 6).
The researchers point out that many popular services that large online platforms make available to smaller websites or merchants, can be used to obtain more competition-relevant data. Although these services are appealing, because they can attract users, the loss of proprietary information about these users can weaken the competitive position of the websites and merchants vis-à-vis the platform, and hence create a data-sharing dilemma.
The research highlight in particular that the following popular services, among others, have the potential to yield such a data-sharing dilemma :
- Social Logins: Social logins are an alternative and addition to the standard repertoire of registration systems on websites. Facebook offers today's most popular social login. Users find it convenient because they can sign on using the account they already have and save themselves the hassle of having to register again. At the same time, the website and the network now share user data. But Facebook benefits from this data sharing to a larger extent. The stronger the competition between website operators, the more likely they end up in the data-sharing dilemma. In many cases, there is ultimately no money to be made from implementing a social login despite the improved service and the placement of more effective ads.
- Google's Accelerated Mobile Pages (AMP): Google’s AMP sounds equally appealing to users and service providers alike, as it promises faster-loading landing pages and prominent placement in search results. However, in order to use AMP, the service providers have to embed a Google script on their website. Google attains access to the connection data; the contents of the website are cached on Google servers. When users click on the content, they end up at Google and no longer at the news website. In addition, AMP restricts the advertising possibilities of the news website and its analytical instruments. The result: AMP is great for users. For service providers, Krämer, Schnurr and Wohlfarth always predict a dilemma - without the possibility of escaping it, if service providers are financed exclusively through advertising revenue.
- Fulfillment by Amazon: Amazon offers a supposed allround service that allows online retailers to outsource the entire shipping process. This service is particularly attractive for smaller companies, since they do not need own storage or logistics systems. They can thus sell their products quickly and easily. This service can also be used on marketplaces such as Ebay. But this service comes at a price: Amazon gains valuable insights into sellers’ businesses, among others the origin of the products, the popularity with customers, even information about customers who have bought these products. The result: Amazon benefits. Sellers, however, will have to worry that Amazon might offer the most popular products itself and feed its system with the recommendations of customers.
According to the researchers, the described services seem particularly appealing to small organizations and start-ups. However, the gained advantages last only until the competing providers upgrade as well.
,Our findings point to a strategic challenge in today’s digital ecosystem‘, write the information system experts. ‚Our research shows that content and service providers run the risk of dependency and exploitation when entering into data-sharing agreements with them.‘
Ways to avoid the login trap
The research team also describes various options by which website operators can mitigate the risks. Among others, they recommend building alliances with competitors ,instead of reinforcing the power of giant online platforms‘. They see blockchain technology as a new opportunity to ‚reinvigorate the concept of a decentralized log-in structure‘.
About the authors
Professor Jan Krämer holds the Chair of Internet and Telecommunications Business of the University of Passau since 2014. Moreover, he is a Research Fellow at the Centre on Regulation in Europe (CERRE), a Brussels-based think tank. Prior to that, he led the research group ‘Telecommunication Markets’ at the Karlsruhe Institute of Technology (KIT).
Dr. Daniel Schnurr heads the Data Policies research group at the University of Passau, which is funded by the Bavarian Ministry of Education, Science and the Arts within the framework of Center Digitisation.Bavaria (ZD.B). The research group cooperates closely with the Chair of Internet and Telecommunications Business held by Professor Jan Krämer.
Dr. Michael Wohlfarth used to work as a junior researcher at the Chair of Internet and Telecommunications Business. His thesis focusses on ,Data as a Competitive Resource‘.
- Original version of the study: Winners, Losers, and Facebook: The Role of Social Logins in the Online Advertising Ecosystem
- Website of the Research Group Data Policies
- The research group Data Policies is funded by the Bavarian State Ministry of Science and the Arts in the framework of the Centre Digitisation.Bavaria (ZD.B).