The Cambridge Analytica scandal demonstrates the power of Big Data in Big Tech
Arguably, the tech backlash that’s muted stocks this year started early, with the revelation that political strategists at Cambridge Analytica had pilfered data from Facebook and used it to sway voters in the 2016 US Presidential Elections. Most of the media furore that accompanied this revelation was aimed at the extent to which the company could ‘micro-target’ audience members, curating messages for tiny demographics and restricting who could see them. This criticism exposed a level of ignorance: a vast swathe of Big Tech’s efficiency comes from doing the very same thing.
Alphabet’s share price has risen by 8% over the last five days!
Source: Yahoo Finance
What Cambridge Analytica did for the Trump campaign in 2016 is not manifestly different from what the majority of other recent political campaigns – including, notably, President Barack Obama’s – have done. The difference is how legitimately the data in use was obtained.
In the case of Cambridge Analytica, an academic researcher collected a massive data set due to relatively relaxed Facebook regulations on whose data you could access (the famous ‘friends of friends’ data that has been unavailable every since). He then sold that data on to a third party (Cambridge Analytica) in a clear breach of Facebook’s own privacy agreements.
Cambridge Analytica got access to around 87 million Facebook accounts to crunch the data therein. But of course, Facebook’s own advertising platform has access to more than 2 billion such accounts. And Google has possibly the most advanced data set in the world – a real-time account of what’s on the minds of billions of people all around the world. Want to know what people buy? Amazon. Want to know what they watch? Netflix and Nielsen. The point is: that data is out there, and these companies are almost certainly better at making sense of it than Cambridge Analytica was.
Marketing and advertising professionals have known this for some time, of course. They also know that the techniques and strategies used tend to be updated versions of traditional marketing techniques, supercharged by data science and information from millions of people. If you want that kind of service, you don’t need Cambridge Analytica to get it.
Investors should take two things away from this: first, the advertising power of Big Tech is going to keep outperforming. Even as the tech backlash, fuelled by accusations of fake news and dodgy political ads, trampled over the market, the big advertisers right in the media’s sights (Google, Facebook) didn’t see their (advertising) businesses suffer. If you don’t already know why, here it is: they are massively outcompeting the market. This type of low-cost, easy-to-operate, data-driven marketing is just much, much, more effective than the older alternatives.
And the second is that, despite the implementation of the EU’s General Data Protection Regulations (GDPR) in May, and the significant fines imposed on Google this year, Big Data in Big Tech isn’t going anywhere. It’s a natural by-product of internet use, and it permeates the very infrastructure of modern life. Governments may try to regulate how it is gathered, stored, and used… but make no mistake, it’s here to stay. And Big Tech will remain in the business of mining the insights they gain from it for profit.
Dominion holds Alphabet, the parent company of Google, as well as a number of other companies that use Big Data, in its Global Trends Managed Fund.
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