In Twitter We Trust... Maybe

By John Rose

Twitter’s market cap stands at almost $25 billion as of the close of trading on November 14. Twitter isn’t alone—all of the leading next-generation digital companies, whether public or pre-IPO, have extremely attractive valuations. The combined value of all the publicly traded traditional television companies in the U.S.—studios, broadcast networks, TV stations (excluding cable companies)—is roughly equal to Facebook’s $115 billion market cap. Investors have similarly high expectations for pre-IPO companies as varied as Pinterest, BlueKai, Criteo, and Snapchat to one day reach the same staggering valuations.

These next-generation digital businesses share with traditional media the fact that they get, or will need to get, the lion’s share of their revenue from advertising and other marketing services. But to tap into this pool of spending, they must develop new and better services that offer a much more complete and tailored understanding of consumers. Almost all of these services require the use of consumer data in ways far outside the original purpose for which the data were collected, whether it’s location information from a smartphone used to deliver a geographically targeted ad, data from a social network to recommend a new product, or purchase stats to offer a “flash sale.”

Almost everyone assumes that these digital companies will have unfettered access to the data they need. But nothing could be further from the truth. Executives stand on the edge of a consumer “privacy cliff” that will limit their companies’ ability to access personal data for new uses—unless a company has gained consumers’ trust. What consumers find most sensitive—including financial, health, location, and surfing data—remains startlingly similar whether you ask millennials, Gen-Xers, or baby boomers, or, for that matter, Americans, Germans, or Brazilians.

To make matters worse, global consumers trust next-generation digital companies with data about them much less than some of their traditional competitors—even cable-TV providers, retailers, airlines, and carmakers. Digital companies are not alone in having low levels of trust among consumers; they’re in good company with governments and credit card companies.

Consumers around the world are willing to support new uses of personal data, but only if they trust an organization to steward data in ways that will not harm them. Companies generating trust in this area will be able to access 5 to 10 times more personal data for new uses than those that lag behind. That data windfall could provide enough revenue to support the sky-high stock market valuations of today.

This is the trust advantage. All of the current crop of digital players will need it if they are going to win over the long term. The point is not that digital companies will be unsuccessful in taking advantage of the data flowing through their businesses. Many of them will succeed. The point is that few organizations, digital or otherwise, seem to be addressing an important barrier to success: trust in data stewardship. Stewardship means that personal data will be used for the purposes allowed—and only for those purposes.

Trust is real. It can be measured. Consumers are increasingly making decisions about where to shop and which digital services and products to use based on this factor. Those companies that fail to foster consumer trust in their data stewardship will be less successful in tapping into new sources of revenue, and they may even lose share in existing products and services.

To achieve a leading level of trust, organizations must address data stewardship with the same level of executive intensity as they devote to inventing new ways to use consumer information. They must monitor and control the flow of data within their organizations, and they must create real transparency about their use of data among consumers and other stakeholders. Today, few organizations have those abilities.

Based on Twitter’s valuation, investors clearly believe in the value of many data-driven digital businesses. But only those companies that focus relentlessly on data stewardship will build sufficient trust to gain access to the consumer information upon which their lofty valuations depend.

This blog was originally published by Businessweek.