Europe is rapidly losing the battle for data, but there is a sizeable opportunity to win this war
Europe is rapidly losing the battle for data from Google, Facebook, Amazon, and China. However, if two shortcomings of the internet are tackled, then there is a sizeable opportunity to win the war.
The scandals surrounding the misuse of data from millions of Facebook members by data agency Cambridge Analytica, have made one thing crystal clear: the data traces you leave behind on the internet as a digital consumer are highly sought after assets.
In the Western world, large data sets ranging from hundreds of millions to more than one billion people, are controlled by a limited number of primarily US platform companies, such as Facebook, Amazon, and Google. At the same time, China, in particular, is rapidly developing into a country where the government uses the latest technology in the field of artificial intelligence, in order to exercise as much digital control as possible over its citizens.
Europe dangles fairly powerlessly, somewhere between the US and China. It is not a superstate like China, where the government increasingly acts as a digital police officer. But Europe also has not many companies with a position that is comparable to Google or Amazon.
"Europe is well behind. If you want to do something about that, a completely different approach is needed," says Shikko Nijland, CEO and co-owner of consultancy INNOPAY in a recent conversation with Business Insider.
INNOPAY was closely involved in the development of iDeal, the successful payment application that has given Dutch banks a strong position in the online payments sector. In the meantime, Nijland is looking a lot further ahead, and not just regarding the future of online payment applications, but in terms of a fundamental change in the way the internet functions.
The Management book of the year 2019 in The Netherlands: “Everything Transaction” that Nijland wrote together with colleagues Chiel Liezenburg and Douwe Lycklama was published in December 2018. In this book, the authors analyse the shortcomings of the way we currently conduct transactions on the internet. And they describe a future where things work quite differently. This entails major changes in the way you as the individual, share and control your data. The 'transactional internet' will also have consequences for the apparently unassailable position of the platform giants.
To start with the basics: what's wrong with the workings of the internet at present?
“The most important flaw in the way the internet functions, is that it is not actually designed for transactions in the same way they occur in the physical world. For instance, if I go to the bakery, I can pay with coins or a note at the counter for my bread. As a buyer and seller, you have a direct view of the exchange of a product for money. The customer and the seller can both see each other, and therefore, they also know who the other person is.
“Such trust elements are of great importance when making transactions, but they are not ingrained within the infrastructure of the internet. Quite often, you do not have a direct view of who the other person is, which could make the exchange of money and products risky. This problem is solved through what is called 'institutional trust.'”
What is Institutional Trust?
“There are all kinds of intermediary parties that we as a society have given the mandate to organize trust online. From government, banks and the tax authorities to the larger platform companies for online shopping. Because you have no certainty about the identity and reliability of the other party when you make transactions online, there is a need for such transactions to be guaranteed via these intermediary parties. "
How do large platform companies benefit from this?
“Take a company like Airbnb, which essentially controls two things: they aggregate the widest possible range of apartments and homes to choose from, and through social reviews made on the platform, they present a level of trust between buyers and providers. This works according to the 'winner takes it all' principle: the party with the most complete offer will dominate the market. And they are then able to achieve substantial profit margins. "
What is wrong with that?
“Because large platforms also build up a transaction history in the form of data with every transaction that is made including your peronal and social reputation data. They are basically sitting on a goldmine. This leads to considerable cimbalance between platforms and users."
Is that the only problem?
“This is just one of the two major weaving errors with the current internet. In addition to this data imbalance, you also have the trust paradox: the fact that you constantly need intermediaries to prove who you are and to limit the risk that something will go wrong when making a transaction online. "
How else could this work?
“In the future, we will move towards what we call the 'transactional internet' in our book. The two shortcomings of the internet will then be remedied by anchoring trust within the internet infrastructure."
What will that look like?
“With regards to the trust paradox; for example, blockchain technology clearly shows which direction it is going. Aside from all the speculation around crypto coins: the idea behind the blockchain is that you have a decentralized digital logbook as a undisputed single source of truth, that makes it possible to do transactions without the need for institutional intermediaries to guarantee trust. Strikingly enough, crypto experts often talk about a 'trustless' infrastructure, but it's actually a highly 'trustful' infrastructure. ”
But what does that mean when you buy or sell things on the internet?
“There are three critical elements that play a key role: Who are you? Where is your transactional data stored? And, what about your reputation data? At present, every time you log on to a certain platform, you must provide proof of your identity; using passport or government issued ID data is just one example of how things work right now. This way, the platform can guarantee your identity to other members.
“It would, of course, work much more efficiently if you confirm your identity via a single application and then use that for every entity with whom you undertake transactions online. Solutions are now starting to emerge with services such as iDIN for online identification.
“Regarding your online reputation, it is important that you, as an individual, have access to your transactional data. You must be able to store it in a type of personal depot. You can then use that data for example to provide proof of your reliability. At present, you are dependent on reviews on platforms; however, they should actually be available to individuals outside of these platforms.”
What would this mean for parties such as Airbnb, Uber, and Amazon?
“The role of platforms could change significantly. Let us look at Airbnb, for a scenario based example again: if the potential supply of rental properties including their social reputation is stored in a trust infrastructure based on blockchain principles, then you would only need search engines or aggregators to find them. Then it would be much easier to create a competing platform and much more difficult to achieve a uniquely dominant position that currently based on the volume of users (reach). So you get healthier competition all around. "
You also envision opportunities in this area for Europe.
“There is a huge opportunity here. If countries in Europe were to work together in this area, the current technological gap with the US and China could be turned into an opportunity for certain. Europe could become the first market to shape the transactional internet. This requires courage and vision, but you can see, that Europe has succeeded in introducing a range of common standards, such as GSM for mobile telephony and PSD2 for mobile payment applications.
“Recent developments in privacy legislation in Europe also support a shift towards the transactional internet. In the US, on the other hand, it seems to be moving in a different direction, with legislation that makes it easier to trade consumer data without their prior consent. And in China, it is the government that takes more control of citizens' data than anyone else."
This interview first appeared in Dutch on businessinsider.nl