Quid Pro Quo: Free Online Services in Exchange for User Data

florianvonwagenheimBy Dr. Florian v. Wangenheim

We all enjoy using Internet services for free: communities, news websites and other web services often do not charge their users. In order to survive, free sites depend on advertising revenues. These can be increased through behavioral targeting, in which the advertiser makes use of information that he has about the advertising recipient, such as demographics, current or past browsing or purchase behavior, information from preference surveys, or geographic information. However, privacy concerns are rising across the globe. They are present in discussions about the acquisition of WhatsApp as much as in the uproar about the data collected by the NSA and the GCHQ worldwide.

For free websites, this means the need to increase users’ acceptance of targeted advertising, The dominant strategy that can be seen virtually anywhere these days is to highlight how targeting increases the relevance of advertisements that people see (e.g., “By bringing content and advertising to you that is relevant and tailored to your interests, Yahoo! provides a more compelling online experience”; Yahoo 2013).

In our current article in the Journal of Marketing, “Targeted Online Advertising: Using Reciprocity Appeals to Increase Acceptance Among Users of Free Web Services”, we report the results of one scenario experiment and two field studies, in which we show that appealing to reciprocity instead of relevance is generally more effective. Hence, websites should simply let their visitors know that without using the user’s data, they will not be able to maintain their free offerings. In our field experiment involving close to seven million website visitors, we found that for the vast majority of websites, the reciprocity appeal is more effective. Only in some cases, when perceived website utility is low and level of user-generated content is high, relevance arguments work better.

We conclude that managers of free websites should remind their users of the free services they enjoy when asking for permission to target them online or to use their personal information. More generally, our study shows that consumers nowadays expect more openness from their service providers. When they feel that the service providers openly explain how their offering is financed, the level of agreement to the usage of personal data is much higher.

Dr. Florian v. Wangenheim is Professor of Technology Marketing, Department of Management, Technology, and Economics, ETH Zürich. His main research fields are technology-intensive service management and value-based customer management. In his research, he collaborates with companies such as BMW, Sevenonemedia, Hilti, Ebay, Lufthansa and many more.

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