Taxing your privacy

Data collection through mobile tracking is big business and the potential for companies helping governments monetize this data is huge. For consumers, protecting yourself against the who, what and where of data flow is just the beginning. The question now is: How do you ensure your data isn’t costing you money in the form of new taxes, fees and bills?  Particularly when the entity that stands to benefit from this data — the government — is also tasked with protecting it?

The advances in personal data collection are a source of growing concern for privacy advocates, but whereas most fears tend to focus on what type of data is being collected, who’s watching and to whom is your data being sold, the potential for this same data to be monetized via auditing and compliance fees is even more problematic.

The fact is, you don’t need massive infrastructure to now track/tax businesses and consumers. State governments and municipalities have taken notice.

The result is a potential multi-billion dollar per-year business that, with mobile tracking technology, will only grow exponentially year over year.

Yet, while the revenue upside for companies helping smart cities (and states) with taxing and tolling is significant, it is also rife with contradictions and complications that could, ultimately, pose serious problems to those companies’ underlying business models and for the investors that bet heavily on them.

Photo courtesy of Getty Images/chombosan

The most common argument when privacy advocates bring up concerns around mobile data collection is that consumers almost always have the control to opt out. When governments utilize this data, however, that option is not always available. And the direct result is the monetization of a consumer’s privacy in the form of taxes and tolls. In an era where states like California and others are stepping up as self-proclaimed defenders of citizen privacy and consent, this puts everyone involved in an awkward position — to say the least.

The marriage of smart cities and next-gen location tracking apps is becoming more commonplace.  AI, always-on data flows, sensor networks and connected devices are all being employed by governments in the name of sustainable and equitable cities as well as new revenue.

New York, LA and Seattle are all implementing (or considering implementing) congestion pricing that would ultimately rely on harvesting personal data in some form or another. Oregon, which passed the first gas tax in 1919, began it’s OreGo Program two years ago utilizing data that measured miles driven to levy fees on drivers so as to address infrastructure issues with its roads and highways.

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As more state and local governments look to emulate these kinds of policies the revenue opportunity for companies and investors harvesting this data is obvious.  Populus, (and a portfolio company) a data platform that helps cities manage mobility, captures data from fleets like Uber and Lyft to help cities set policy and collect fees.

Similarly, ClearRoad  is a “road pricing transaction processor” that leverages data from vehicles to help governments determine road usage for new revenue streams.  Safegraph, on the other hand, is a company that daily collects millions of trackers from smartphones via apps, APIs and other delivery methods often leaving the business of disclosure up to third parties. Data like this has begun to make its way into smart city applications which could impact industries as varied as the real estate market to the Gig Economy.

“There are lots of companies that are using location technology, 3D scanning, sensor tracking and more.  So, there are lots of opportunities to improve the effectiveness of services and for governments to find new revenue streams,” says Paul Salama, COO of ClearRoad . “If you trust the computer to regulate, as opposed to the written code, then you can allow for a lot more dynamic types of regulation and that extends beyond vehicles to noise pollution, particulate emissions, temporary signage, etc.”

While most of these platforms and technologies endeavor to do some public good by creating the baseline for good policy and sustainable cities they also raise concerns about individual privacy and the potential for discrimination.  And there is an inherent contradiction for states ostensibly tasked with curbing the excesses of data collection then turning around and utilizing that same data to line the state’s coffers, sometimes without consent or consumer choice.

Image courtesy Bryce Durbin

“People care about their privacy and there are aspects that need to be hashed out”, says Salama. “But we’re talking about a lot of unknowns on that data governance side.  There’s definitely going to be some sort of reckoning at some point but it’s still so early on.”

As policy makers and people become more aware of mobile phone tracking and the largely unregulated data collection associated with it, the question facing companies in this space is how to extract all this societally beneficial data while balancing that against some pretty significant privacy concerns.

“There will be options,” says Salama.  “An example is Utah which, starting next year, will offer electric cars the option to pay a flat fee (for avoiding gas taxes) or pay-by-the-mile.  The pay-by-the-mile option is GPS enabled but it also has additional services, so you pay by your actual usage.”

Ultimately, for governments, regulation plus transparency seems the likeliest way forward.

Image courtesy Getty Images

In most instances, the path to the consumer or tax payer is either through their shared economy vehicle (car, scooter, bike, etc.) or though their mobile device.  While taxing fleets is indirect and provides some measure of political cover for the governments generating revenue off of them, there is no such cover for directly taxing citizens via data gathered through mobile apps.

The best case scenario to short circuit these inherent contradictions for governments is to actually offer choice in the form of their own opt-in for some value exchange or preferred billing method, such as Utah’s opt-in as an alternative way to pay for road use vs. gas tax.   It may not satisfy all privacy concerns, particularly when it is the government sifting through your data, but it at least offers a measure of choice and a tangible value.

If data collection and sharing were still mainly the purview of B2B businesses and global enterprises, perhaps the rising outcry over the methods and usage of data collection would remain relatively muted. But as data usage seeps into more aspects of everyday life and is adopted by smart cities and governments across the nation questions around privacy will invariably get more heated, particularly when citizen consumers start feeling the pinch in their wallet.

As awareness rises and inherent contradictions are laid bare, regulation will surely follow and those businesses not prepared may face fundamental threats to their business models that ultimately threaten their bottom line.

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