Consumer Internet 3.0?-?Privacy and Digital Consciousness.

Almost 30 years ago the Internet revolution started and the first wave of digital products and services for consumers emerged. The main innovation of the world wide web was that it allowed close to zero marginal costs to serve new users. Instead of charging consumers upfront for access, companies saw digital advertising as the holy grail and default mechanism of monetization. This was Consumer Internet 1.0.

Things have changed.

Consumer Internet 1.0 taught us to get most online products “for free”. Initially, companies served relative harmless contextual ads based on the website you visited. But soon the cookie was invented to track a user across multiple websites with the purpose of better understanding the customer and serve more efficient advertising.

The second phase, Consumer Internet 2.0, started roughly 15 years ago which predominantly was manifested by large social platforms like Facebook. The main difference to its predecessor was that this time, it was all about bringing the consumers’ IRL identities to the online world. Over time, subsequently more information about our real lives started to emerge online, and smartphones added a critical data layer around location proximity to the mix, combined with constant online availability. These services were designed to be addictive with the purpose of collecting more data and generating more opportunities to serve ads. As consumers began to devote themselves more and more to these platforms, the power of corporates tracking this data grew increasingly stronger. Most people didn’t care about sharing their data or weren’t aware of any downsides to such, as the services these digital platforms provided were so alluring. So corporates over-invested in extracting more data from their users and reselling that to anyone who wanted access to it. At least until recently…

A changing tide.

During the past couple of years, a few things related to consumer data happened.

1. Regulators opened their eyes to the issues that come along with tracking individuals at scale and decided to push for better data transparency and management. GDPR, with all its flaws of actually making the large internet giants even more powerful, was the first of its kind. And we’ll see more and more of these coming, with for example California’s Privacy Act.
2. Consumers started to see real examples of data breaches, e.g. Equifax, Marriott, Cambridge Analytica, and many more. These events have helped the average internet user not only to understand what type of personal data companies are tracking but also to see the dangers if their data is being used unlawfully.
3. Individuals, as well as authorities, came to realize that public opinion can and is manipulated through digital platforms, which can have dramatic impacts on the world. The stakes are suddenly as large as they come! Consumer internet giants are more powerful than governments and they can and will abuse consumer data to generate more revenue. ?? What we thought was “free” has come at a huge cost.

Consumers started to realize that if they don’t have to pay for an online service, they are the product! This sparks the beginning of…

Consumer Internet 3.0.

We are now entering a new era of consumer internet which is centered around 2 new dimensions: privacy and digital consciousness. Consumers have acquired digital literacy which prevents them from accepting that all their entire online behavior is being tracked. They will opt-in and out of tracking based on the needs and value gained from specific services at the time. They will question and scrutinize the commercial, business or public need to collect specific data, forcing companies to stick to the most essential tracking to justify their product value.

Hence, companies have to start to provide more transparency around what data they collect and why they do it and integrate this communication into the product experience. Also, although companies will continue to try and attract as many eyeballs to their services as often as they can, they will be held accountable for digital addiction behaviors. Consumers (+ regulators) will expect there are ways to limit and counter behavior which is potentially destructive, similar to what some betting and gambling companies have had to do to manage gambling addiction.

According to us,

this is the largest shift in consumer internet behavior we have seen since the invention of the world wide web. 

“Free in exchange for data” will no longer be the assumed default way for consumers and companies to engage online. For consumers who choose not to share data, alternative business models will emerge using paid access. A completely new cohort of consumer internet companies will be created by those who navigate making privacy and data consciousness a core part of their user experience.

Of course, all internet services will not be placed behind paid walls, and digital advertising is unlikely to disappear anytime soon. Nor will the big internet platforms which are built upon consumer data tracking vanish in the near-term. And all trackers are not bad and infringing on personal privacy as outlined by Stratechery. However, while there will still continue to be demand for free services using traditional consumer internet models for certain users and products, we are excited about the emerging opportunities this shift in consumer mentality creates for innovative companies.

3 opportunities identified.

As part of the Consumer Internet 3.0 transition, we have identified three emerging areas within this space where we believe significant value will be created in the coming years.

1. Consumer Data Management

These are companies that help users better understand what kind of data companies are tracking, and how to manage or erase it. These services focus on end-user privacy at all times, with the purpose of creating transparency around data. A couple of prime examples of these services are Jumbo Privacy, DeleteMe, Privacy Co, and Solid.

2. Privacy-as-a-Service

These are companies that help users increase anonymity, minimize tracking and increase security online. This category includes products like password managers (e.g. 1Password), VPNs (e.g. Guardian Firewall), ad blockers (e.g. Adblock Plus), private browsers (e.g. Brave Browser), private search engines (e.g. DuckDuckGo), anonymous payment (e.g. Abine Blur, and partly Bitcoin), and anonymous/virtual phone numbers (e.g. Google Voice).

3. Digital Access

These are services that help consumers better understand and manage usage of specific products and services and improve their online behavior. We’re already seeing the increased popularity of such tools for families to manage their kids’ digital access, and we strongly believe that giving kids unmonitored access to the internet will be considered as reckless as driving without a seatbelt in a few years. Examples of companies operating in this space are Qustodio, FamilyTime, and Net Nanny.

It’s not unlikely some companies will bundle and cover multiple areas of the ones above to expand addressable use cases. In a world of “free” where consumers have become the product, we believe people want something else and we want to be part of this new wave. If you’re a company pursuing a bold opportunity where consumer privacy and digital consciousness are at the center of it we would love to chat! Whether that is building products and services which historically used ad-based biz models but now leverage subscription or paid access, or specifically fit into our opportunities defined above.

Let’s make the internet great again. ????♂?

PS — Big shoutout to my esteemed colleague Ines Streimelweger for the hard work in framing these thoughts into readable words. ??