Award Winning Blog

Tuesday, September 15, 2020

Misrepresentations in the Rat You Out Economy

            Most readers over the age of 30 probably know the meaning of “rat you out.”  In crime movies and elsewhere, someone discloses to law enforcement and other authorities the crimes and indiscretions committed by someone else. The rat saves himself from criminal prosecution, or something less hazardous, such as embarrassment.

            We live in a rat you out economy where just about every commercial and even presumed private transaction has an informant with a financial incentive to disclose any and all wants, needs, desires, interests, locations traversed, political affiliation and even crimes that law enforcement would never uncover.   Even trusted intermediaries reserve the option in their service agreements, for which consumers have no option other than “take it or leave it.”  In this world, cellphone carriers can leverage their need to track subscribers’ locations not just to maintain reliable service, but also to create new profit centers from the sale of locational information to willing buyers. 

            A curious example: a political party wanted to know the identities of frequent visitors to Roman Catholic churches.  Despite carriers claims that they anonymize subscriber location information, data analytics firms can use multiple sources to identify individuals, frequenting the churches.  With this amalgamated information, a political party opposed to abortion can target like-minded voters through locational data generated by cellphones, collected by wireless carriers and mined by other data analytics firms.

            Plenty more intrusive, risky and potentially deadly rat you out scenarios exist given the ease in which cellphone location data can identify travel patterns.  A bail bondsman might have an easier time finding someone who ignored a court appearance, but so too can a spurned spouse or lover track and potentially harm the rejecting former partner.

            Bear in mind that consumers have to accept such privacy intrusions and surveillance as part of the cost in participating wireless commerce.  Verizon and other carriers reserve the option of monetizing location data, without discounting service, or the cost of the smartphone.  Wireless carriers accrue real monetary benefits as do Internet firms that offer something “free,” provided subscribers agreed to one-sided terms and conditions. Clearly, the value proposition experienced by consumers contains both benefits and costs.

            If you agree to the last sentence above, perhaps you might see the problem in the relentless campaign by sponsored researchers and policy advocates to remind us about all the upside with nary an acknowledgement about the downside.  A recent consumer surplus love fest was expressed in a Wall Street Journal op-ed bemoaning antitrust scrutiny of large technology firms; see  The authors tout the wondrous monetary savings and life enhancements generously offered by Big Tech firms.  Remarkably, the authors make no reference to offsetting financial benefits transferred from consumer to vendor.  They do not seem to comprehend how the rat you out economy works: consumers benefit from something offered freely, or at less cost, but only if they allow valuable commercial surveillance to occur. 

            I will readily acknowledge that consumers might still come out ahead in a final accounting that offsets benefits with costs, but the authors apparently do not want you to know that negative offsets exist.  Even if the authors had mentioned offsetting costs, they might have dismissed them as insignificant. 

            In the broader world of politics and global business such false accounting joins the rate you out economy.  Apparently the espionage in the surveillance by Huawei, ZTE and TikTok is a perilous threat to national security, but the enhanced value proposition from Big Tech deserves a major Thank You! with no need for antitrust scrutiny.

Why Spend More Than $6.25 Billion on a Company that Primarily Resells Your Service?

  You might wonder why Verizon would pay a hefty premium to buy the U.S. wireless resale flavors of America Movil’s TracFone.  See  I’ll start with reference to the name of the acquired company.

Verizon gets more than a remarkably profitable revenue stream from TracFone’s 13+ million prepaid—presumably low margin--wireless subscribers. Verizon adds 13 million consumers whose commercial (and private) activities are increasingly subject to extensive surveillance.  Verizon’ ability to track the phones of 13+ million new customers has the potential for substantially adding revenue well beyond the relatively paltry monthly payments for resold cellphone service.

Perhaps belatedly, Verizon recognizes that it has less to gain in targeting and pitching the few higher margin, post-paid wireless subscribers than in acquiring a vast treasure trove of new consumers available for targeting and pitching lots of products and services.  Smartphones have become trackable devices for location-based marketing, data collection and mining and cross-promotion.

Verizon has implemented a part of Amazon’s strategic planning.  Amazon sells Kindles and Fire tablets, probably at a small loss.  The company easily recovers its investment as consumers owning Amazon devices typically become higher volume purchasers than consumers who interact with the company via other devices.

I learned the hard way about Amazon’s cross promotional strategies when I purchased an Insignia smart television set conveniently pre-loaded with a host of Amazon applications.  What I did not know was the miserly 4 Gigabyte memory capacity of the set, 75% of which Amazon occupied while denying set owners the ability to delete any of the pre-loaded apps.  Worse yet, Amazon prevents most competing and alternative apps from being downloaded to external memory inserted into a USB port.  How clever.  I inadvertently have become largely captive to Amazon content, or to ventures willing to pay Amazon for undeletable app installation.

Verizon realizes that it too can surveil (yes, another word for track) and relentlessly market to a captive customer base.  Better yet, Verizon—unlike Amazon—does not even have to discount the tracking device.  Cellphones monitor user locations so that subscribers can make and receive calls, etc. Additionally, this essential function of wireless service easily transitions to commercial surveillance and profitable marketing to third parties by wireless carriers. Bear in mind that the nonnegotiable, “take it or leave it” wireless service contract reserves for the carriers all sorts of subscriber data monetization options—at no additional compensation to the subscriber. 

Verizon gets two additional revenue streams from its TracFone acquisition: 1) cross promotion of its services to 13 million new subscribers and 2) revenues from third parties willing to pay for marketing access.  In a nutshell, Verizon has less interest in the monthly revenue stream from pre-paid wireless access than from the variety of additional revenue streams it can generate by having a large new customer base to surveil and market.

Heretofore Verizon appeared disinclined to promote resale for fear that it would cannibalize higher margin post-paid service, despite AT&T’s successful Cricket venture.  Verizon still may have limited interest in resale revenue streams, aside from the ample new ancillary revenues likely to accrue.