Approaches to Data Monetization

Why marketplaces are tough and how regulatory reform might create data property rights.

This week I stumbled upon an app with an interesting idea.

The app, 4th Wall is monetizing data to donate the proceeds to charity.

The concept works pretty seamlessly:

Step 1: Download the chrome extension.

Step 2: Watch Netflix.

Step 3: Profit/Donate.

By cataloging what individuals are streaming on Netflix, Hulu, or Prime Video 4th Wall can sell that data to third parties and use the proceeds to donate to charities. To date, the charity has donated over 27,000 meals to food banks. That’s impressive and it’s exciting to charities exploring the power of data monetization considering people are currently giving away their data for free.

The concept of data monetization is a constant theme of this newsletter because data is at the foundational layer of the Web3 movement.

Data Monetization: Marketplace vs. App

There are dozens of companies tackling this problem, most commonly by attempting to create a data marketplace where individuals can buy and sell data. While a data marketplace may eventually be successful, creating a two-sided marketplace is incredibly challenging.

The Challenges of Creating a Two-Sided Marketplace

Just think of all that has to happen to create a successful data marketplace.

How to Create a Successful Two-Sided Marketplace | Dinarys

From the supply-side, the marketplace needs more than just a lot of data, it needs valuable data. This comes from thousands, if not millions of users, providing data that third-parties want and can utilize.

A two-sided marketplace also requires a robust demand-side – people willing to purchase the data. Data analysis requires thousands or millions of separate pieces of information to make accurate predictions. On top of that these data scientists or, more likely, companies will have to pay users a meaningful amount.

Classic chicken and egg problem.

Startups are attempting to build data marketplaces because marketplaces have network effects. Businesses with network effects have the potential to become natural monopolies and create hundreds of billions in value.

In contrast, 4th Wall isn’t creating a two-sided marketplace. The company's only ask is that users watch Netflix with a data tracker. 4th Wall aggregates and monetizes the data on the back end.

Data marketplaces like Ocean Protocol or Streamr are utilizing cryptonetworks to help kickstart data marketplaces. These protocols utilize a token to reward early adopters and provide a financial incentive to participate in the protocol underlying the data marketplace. These types of incentives can help expedite the marketplace dilemma.

For example, imagine a marketplace like Uber or Lyft – there are drivers and users. Getting a customer to trust driving around in a strangers car used to be a foreign concept. So, Uber and Lyft had massive rewards programs that would provide users $5 off each of their next 10 rides. The incentives allowed users to test out the product and eventually created a robust marketplace of drivers and wannabe riders.

Cryptonetworks have the potential to speed up the arduous lifecycle to creating a robust two-sided marketplace because they provide users equity in the protocol rather than reducing cash flows. The time to launch successful marketplaces will slowly decrease as individuals become comfortable with cryptonetworks and token-based economies.

Unfortunately, there will likely need to be some sort of regulatory reform to make data monetization a reality.

The Regulatory Approach to Data Monetization

Former presidential candidate Andrew Yang recently announced the Data Dividend Project (DDP), an initiative to help establish personal data as a form of property. The project seeks to establish and enforce data property rights under laws such as the California Consumer Privacy Act (CCPA), which went into effect on January 1, 2020.

Andrew Yang’s initiative focuses on challenging the data brokering industry.

Data brokering, the process of selling or reselling consumer data is a $200 billion industry. DDP is collecting the information and signatures of Californians that will let the DDP represent these individuals legally. The project plans to acquire as many signatures as possible and then collectively advocate for individual data rights including the right to be compensated for the use of personal data.

If the DDP can pay people for their data then other states might adopt similar regulations.

Society needs data property rights that encompass data, social graphs, healthcare, and more. New regulation enforcing data property rights has the power to change business models and realign incentives.

The importance of digital property rights cannot be overstated. If implemented correctly, data rights for individuals would be a defining moment of the 21st century.

Advancing Web 3.0 is a weekly(ish) newsletter about cryptocurrencies, decentralized finance (DeFi), and technologies that are shaping the next era of the Internet. Welcome to the bleeding edge. Welcome to Web 3.

About the Author: I’m Mason Nystrom, a Research Analyst at Messari covering companies and cryptoassets at the intersection of Web3.

Previously I worked for ConsenSys as a marketer focused on marketing strategy for ConsenSys and its portfolio companies. Prior to joining ConsenSys, I worked as a Business Analyst at Gatecoin, the first cryptocurrency exchange to list ether, Ethereum’s native cryptocurrency.

The views, information, and opinions expressed are solely those by the author and are meant for informational purposes only and are not intended to serve as a recommendation or investment advice to buy or sell any securities, cryptoassets, or other financial products.