13Dec/12Off

Interview with Hal VARIAN, Chief Economist at Google

Published in COMMUNICATIONS & STRATEGIES No. 88, 4th Quarter 2012

Privacy, Openess and Trust

Summary of the issue: Information and Communication Technologies (ICT), and the Internet in particular, offer companies the ability to collect large amounts of data about their users, and to use this information as a key input for value creation. New business models based on gathering and aggregating personal data and leveraging big data technologies, lead to innovative market offerings. To become successful, they depend on disclosure (openness) and trust on the users' side. Though the disclosure of personal information might benefit consumers via, for example, better tailored services, openness also creates risks of abuse of personal data, ranging from increasing market power (e.g., due to price discrimination) to privacy breaches by the data holder, or even cybercrime from initiatives of rogue third parties.

Exclusive:

Interview with HAL VARIAN
Chief Economist at Google
Conducted by Marc BOURREAU (Telecom ParisTech, PARIS)

> Discover also the interview with Isabelle FALQUE-PIERROTIN, President, CNIL

C&S:  What are the crucial dilemmas and tradeoffs with respect to privacy, openness and trust for end users but also for service providers, and the potential risks?

Hal VARIAN:  I share all sorts of personal information with my doctor, lawyer, accountant, and bank.  Why?  Because when they are better informed, they will be able to better help me.  The same is true of online information service providers: if they know my calendar, they can remind me of meetings; if they know where I am, they can provide better directions; if they know what I like, they can make better recommendations.  The important element is trust.  If I provide information to these parties, will that information be used to help me, or will it be used in a harmful way?  We have established norms for professional services, but the internet is a new environment, so these norms are not fully developed.

How can we explain the apparent naivety of some consumers and the reluctance of others in the disclosure of personal information, despite the stronger awareness of data usage and related risks? To which extent do service characteristics influence consumers' reaction to information disclosure?

Academic studies have shown very wide dispersion in attitudes towards privacy.  Some people are very concerned about privacy and others really don't care much at all.  This makes it difficult to have a one-size-fits-all model, which means you must offer people choice. I expect that as people become more familiar with the benefits of information technology, this dispersion will be reduced.

How can firms make sure that users have enough trust so that they will provide their personal data in order to obtain innovative services?

A big brand name firm, like Google or Microsoft, has a lot to lose if they make a mistake in this area so they have a strong incentive to be extra careful in managing user information.  Smaller firms may lack the incentives and the expertise to take sufficient care.

Can we expect new models empowering end users with their personal information, around for instance vendor relationship management initiatives?

At Google, we build our policy around choice and control.  We believe that organizations should offer the user a choice about what data is collected and that the user should be in control when it comes to their data.

Do big data represent a major disruptive innovation as some argue (e.g., Erik Brynjolfsson)?

Yes, I think that the big data will be disruptive.  People will come to expect much more efficient online services.  Companies that build trust and can offer such services will have a competitive advantage.

What kind of public policy, if any, is needed to ensure that there will be sufficient trust in electronic markets so that data-demanding innovations can flourish, and how does it influence the value of personal information?

As I mentioned earlier, I think that norms will develop in this area.  At this time the important thing is to avoid regulation that will inhibit experimentation and innovation.

To what extent should the government protect children and adolescents from behavior that may bring them trouble much later on (imagine a candidate for a high position who gets confronted with an awkward photograph from younger days, decades earlier)?

This is the toughest question you have posed!  I think that the best tool is education, so that young people are made to understand clearly that their actions now can come back to haunt them later.


Short Biography

Hal R. VARIAN is the Chief Economist at Google. He started in May 2002 as a consultant and has been involved in many aspects of the company, including auction design, econometric analysis, finance, corporate strategy and public policy. He is also an emeritus professor at the University of California, Berkeley in three departments: business, economics, and information management. He received his SB degree from MIT in 1969 and his MA in mathematics and Ph.D. in economics from UC Berkeley in 1973. He has also taught at MIT, Stanford, Oxford, Michigan and other universities around the world. Dr. Varian is a fellow of the Guggenheim Foundation, the Econometric Society, and the American Academy of Arts and Sciences. He was Co-Editor of the American Economic Review from 1987-1990 and holds honorary doctorates from the University of Oulu, Finland and the University of Karlsruhe, Germany. Professor Varian has published numerous papers in economic theory, industrial organization, financial economics, econometrics and information economics. He is the author of two major economics textbooks which have been translated into 22 languages. He is the co-author of a bestselling book on business strategy, Information Rules: A Strategic Guide to the Network Economy and wrote a monthly column for the New York Times from 2000 to 2007.

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