Erste Asset Management

Engagement – Better handling of user data

Engagement – Better handling of user data
Engagement – Better handling of user data
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Social networks are made for communication, for example about the aesthetic appeal of the breakfast egg, selfies at picturesque places, mountains just climbed [guilty as charged; author’s note], or whatever is keeping some presidents up at night (“Covfefe”?).

Unfortunately, the large operators of social networks are decidedly less outspoken when it comes to their use of the data thus obtained. The companies we contacted did not want to talk about the maintenance of the private sphere nor about data protection. But that was not surprising.

Let’s look at Mark Zuckerberg’s two most recent appearances before the US Senate and the European Parliament’s Committee on Civil Liberties, Justice and Home Affairs: he fell clearly short of giving satisfactory answers to the urgent questions concerning facebook’s handling of personal user data. While at the US Senate this was easy due to partially rather tame questions (possibly furthered by the ignorance of the company’s business model on the examiners’ part), in Brussels he unfortunately had to catch a flight before responding to all the questions that had been posed by the parliamentarians.

Such tendencies of going against transparency or political control harbour substantial risk, not the least from an ESG perspective. The scandal around Cambridge Analytica is well-known. Initial studies have questioned the democratising effects that social networks were being praised for during the Arab Spring.

Independent of these political aspects, the lack of transparency in handling the personal data of EU citizens suggests enormous, latent legal risks. In 2019, the General Data Protection Regulation (GDPR) is to be complemented and tightened by the EU E-privacy Regulation. From that moment onwards, every citizen has to actively opt into the use of their data. facebook claims that this requirement is being met by the user’s login on their homepage. However, the business model of the company is not only based on its users, but also to a significant extent on the shadow profiles it keeps of all other individuals, partly by buying external data from third parties. It is completely unclear how this model can continue within the context of the new Regulation. In view of these uncertainties, our fund managers have been advised not to buy any further facebook shares for the time being.

The opportunities that the transparent handling of user data within the framework of Big Data applications creates have been illustrated by our engagement with the German Otto Group. Otto claims to be able to mine about 250 data points simply on the basis of the connection of its customers with its servers. The data thus generated are under no circumstances sold; instead, they are used to model customer behaviour and prevent fraud. In addition, this approach also offers clear environmental benefits (on top of the financial ones): a cut-back on returned items and a resource-efficient organisation of the flow of goods. If the desired product is close to the customer at the right time, this reduces transport distances and the resulting greenhouse emissions.

Netflix is going down a similar route: instead of re-packaging its user data into a product, the company uses them exclusively to improve its product for the user and thus to retain subscribers.


Legal note:
Prognoses are no reliable indicator for future performance.



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