Do you ever wonder how advertisers and online platforms seem to know more about you than you ever cared to share? Data brokers are partly to blame since they collect user data, often without the consent of individuals, to sell to other companies. Data brokerage in itself is not illegal, but the lack of regulation and transparency leads to a handful of privacy and security concerns. Let’s take a closer look at how data brokers operate, the type of data they collect, and how they profit in the process.
What Is a Data Broker?
Data is the modern-day equivalent of jewels and can be harvested and processed for profit. Such is the case with data brokers, which are companies that collect, bundle, and sell your personal information to other companies.
Data brokers can collect data either directly or indirectly through services they own, the software they use, or companies they work with. Their data include everything from your personal information to your consumptive patterns and preferences.
How Does Data Brokerage Work?
Most data brokers refine the data they acquire from multiple sources and sell them as pre-packaged consumer bundles. These bundles pertain to specific consumer categories or target audiences, depending on the interests of their clients. For example, a database containing demographic information of PC gamers can be sold to a gaming developer company.
In addition to selling data, data brokers are also allowed to license or otherwise share the data with third parties. Some brokers advertise their datasets on data-sharing platforms, where hundreds or even thousands of other companies contribute data.
While the industry’s practices come with a lot of security and privacy ramifications, the act of brokering data is in itself not illegal. Most of the activities of data brokers take place under the radar, so they remain largely undocumented while the industry itself remains unregulated.
How Do Data Brokers Profit from Your Data?
Data brokers make money selling the information they have collected into packages that companies can use to design or market their products or services. Data brokers don’t “sell” the data in the traditional sense, but instead, license the data to other companies. The difference is that with licensing, the broker still retains ownership of the intellectual property or the data but gives permission for its use and commercialization.
Data brokers normally set their prices for the data they sell. The more detailed and sensitive the information provided, the higher the price tag for that particular data package. In the same manner, higher demand and a higher level of difficulty in acquiring the data also lead to higher prices.
Types of Data Brokers
The data brokerage industry is composed of sub-categories of brokers, just like with any other industry. The pool of data brokers can be generally classified into two:
Primary data brokers gather data either directly from websites and services that they own or indirectly through companies that collect the information straight from consumers.
Examples of primary data brokers include Google, Facebook, Twitter, eBay, and other websites that collect data directly from consumers.
There are also secondary data brokers, who generally depend on other companies who have collected the information first. They may purchase processed data from primary brokers. They may also use special software to “scrape” the data off social media websites and the like to sell in the open market.
Types of Specialized Data Brokers
The data brokerage industry has a lot of ins and outs that have not been fully explored. Some operate exclusively within certain industries that rely heavily on consumer data. Some examples of these specialized data brokers include the following:
People Search Brokers
People search brokers are data brokers that specialize in collecting information about individuals and then sharing them online. These websites allow you to look for information about specific individuals (like a directory), but it contains more than just their contact information. Examples of people search brokers include Spokeo, BeenVerified, and PeekYou. Some people-search websites like TruePeople offer their services for free.
Having said this, you might want to check whether you are on these websites and have your data removed if the website offers an opt-out. Take this process of how to remove yourself from TruePeople search, for example.
Marketing and Advertising Brokers
These brokers specialize in collecting consumer spending data and package them into so-called “consumer categories.” By working with the alphabet soup of data, they can come up with a large selection of consumer categories that their clients can target with advertising.
One of the largest and most well-known data brokers on the planet is Datalogix, owned by Oracle and Acxiom. Datalogix reportedly has over 3,000 consumer categories and information from over 700 million people from around the globe.
Personal Health Brokers
Personal health brokers specialize in collecting health-related information directly from your web searches or pharmacies. Their objective is to figure out what medical conditions you may have as well as the medicines that you take. Their clients include pharmaceutical companies as well as health insurance companies.
Financial Information Brokers
Financial information brokers source information that points to your credit score or likelihood of defaulting on loans. They also help to verify your identity and track your financial transactions with other companies. Their clients include banks, mortgage lenders, and other financial institutions that normally conduct background chess on individuals.
What Types of Data Do Data Brokers Collect?
Data brokers collect a large number of data points from individuals. It can range from the more basic data points to more sensitive data points and consumer-behavior-specific data points.
Some of the more basic data points include your name, age, gender, address, education, and occupation. The dossier might also include more sensitive information such as your social security number, personal properties, annual income, etc.
Data brokers are also interested in consumer-related information or information that tries to identify your purchasing habits. For example, let’s say that you spend a lot of time watching television shows on Netflix. A data broker might compile information about your favorite shows or the genre of shows that you love to play the most. They will encode this information into a database along with the data of other movie enthusiasts.
They might also want to know the items that you purchase daily, such as what brand of toothpaste you use or which fast foods you visit most often. While utterly mundane, these small details about your life contribute to a larger aggregate of consumer data.
How Do Data Brokers Get the Information?
Data brokers are some of the most resourceful companies on the planet to acquire data. Most data brokers are already connected to sources of data or own services that collect data, so they don’t have to work that hard to collect data in the first place. Nonetheless, they use a few standard methods to collect data:
Data scraping, also known as web scraping, compiles information from online sources such as websites and online databases. It’s one of the most common ways that websites get data from consumers on the internet, and even the owners of websites use it to study their clients.
Most brokers use special software called “scraper bots” to effortlessly acquire the information they need from consumers. Scraper bots parse through the HTML code of a web page to extract embedded data based on specific parameters. Companies normally use these bots to scrape off data from social media sites, mobile apps, and e-commerce sites.
Companies that collect data in the first place belong to a different category within the data economy. As such, they are technically not considered data brokers. But some companies, like Facebook, Google, and YouTube, don’t just collect data but also sell data. So while they may never admit to it, they are data brokers in the strict sense of the term.
Companies like the ones we’ve mentioned don’t have to look far to get the data they need. Users practically hand over some of their personal information upon entry in exchange for a service or access to a platform. The data they collect offer valuable insights into their users’ interests and purchase patterns.
While most of the demographics data are sourced from sign-up sheets, those are not enough most of the time. Data brokers often need to employ additional tactics to get specific data. For example, by tracking your cookies and scripts which are “breadcrumbs” that you leave behind on websites. They also sometimes turn to online surveys for you to provide information about your preferences.
When companies aren’t scraping data off the internet or collecting the data themselves, then they are buying it from companies that collect the information. In reality, though, it would be very difficult to pinpoint which types of data are being sold and to what degree. It’s also nearly impossible to identify the companies that participate in the exchange. But even when the data changes in shape or form, the simple fact remains that it passes from one company to another.
Where Does the Data Come From?
The digital age and the emergence of sophisticated tracking software have opened up many avenues for data brokers to acquire individual data. Along with the lack of regulation on data brokerage practices, that leaves large pools of data unprotected and vulnerable to data broker exploitation. Here are some of the “data pools” that data brokers tap into:
Out of all the classes of websites that track your online activity, retailers are probably the ones to value your data the most. Their entire business model is centered on getting people to buy items from their store. And to do that, they need to know what you want. They analyze this by tracking your receipts and search terms on the site. In other words, practically everything that you do on the site is being monitored.
Stores often market loyalty cards as a way for you to get discounts, but unbeknownst to you, they also use these cards to track your purchasing activity. The loyalty cards come with software that logs all of your transactions on a database. The company can then use the information to send targeted ads your way to increase the chances that you’ll spend money.
Reports indicate that there are over 1,400 stores using loyalty cards to sell information to data brokers. In other words, most of the places you shop that offer loyalty cards have likely sold your data to other companies. And chances are, you signed up for the program unaware that your data was going to be tracked.
Data brokers source the majority of their data legally from publicly available information. This public information includes marriage records, criminal records, voter registration records, demographic census records, and property ownership and sale histories.
Social media websites contain a wealth of personal information, and data brokers are exceptionally keen to acquire data from these websites. In most cases, they use scraper bots and other special software to harvest information from websites such as Facebook, TikTok, and YouTube.
Most of these pages contain full names, contact information, location, personal photos, and videos, plus posts from followers. Scraping on social media websites is not illegal, so data brokers have no real incentive to stop the practice. So even when social media websites claim to prohibit scraping, there are no decisive changes to the practice.
Scraper bots can sometimes go o far as recovering the items you either made private or deleted from your profile. Say, for example, that embarrassing beach photo at the beach that you posted on Facebook and later deleted. While technically illegal, the practice of using scraper bots to acquire private data is far from impossible.
Your internet browsing history contains a lot of information about your thinking patterns, hobbies, interests. These are all very personal, which makes them a valuable pool of information for data brokers. Data brokers that directly own search engines have an easier time collecting this type of data since they have direct access to consumers.
On the other hand, their entire business model of search engines relies on the collection and analysis of user data in the first place. They use the data to populate your feed with articles and ads that relate to your interests, and so they rarely offer an opt-out option. As a result, most users simply end up unaware that they are being tracked.
This is why it’s so important to use a decentralized web browser with end-to-end encryption and special features like tracking blockers. Examples of the so-called decentralized browsers include the likes of Opera, Brave, Safari, and Tor browsers — which are the best browsers for privacy.
Smart Home Devices
Smart devices that operate within the internet of things (IoT) are all the rave nowadays. But they also pose security risks associated with data collection. The so-called “smart” cameras, speakers, watches, TVs, and the like are all connected to the internet, which makes them the perfect vessels for tracking software.
An IoT study conducted by members of the Northeastern University and Imperial College London uncovered the risks associated with IoT devices. The researchers tracked the capabilities of 81 different smart devices, including computers and phones, smart speakers, TVs, and so on. They found that 72 out of the 81 devices shared data with third parties unrelated to the manufacturer.
The devices shared not only personal information but also IP addresses, device specifications, configurations, and location data. The researchers also found that the devices were sending data in real-time, sometimes every minute. To make matters worse, they discovered the data sent in plaintext, unencrypted format, which makes them vulnerable to attack.
This study is the perfect illustration that most IoT devices use tracking to monitor your data. Since most of the IoT devices in the home are entertainment devices, those devices track the type of content that you consume as well as the timing of your consumption.
Who Benefits from the Data?
Now that we know the basics about what type of data is being collected by data brokers, we come to the question of who benefits from all of it? While a huge chunk of the demand comes from the advertising industry, there are essentially zero limits as to the type of customers data brokers can have. Effectively anyone willing to pay for the data can get it.
Aside from the advertising industry, there are other industries known to benefit from big data. These include the banking, credit, insurance, housing, and employment industries. Even government agencies such as the Census Bureau, FBI, and DOD have purchased data from brokers in the past. Of course, there are also individual buyers, a small subset that can easily comprise “bad actors” such as scammers.
What Is the Information Worth?
As you can imagine, the data brokerage industry wouldn’t go to great lengths to collect data if the business wasn’t profitable. And the reality is that these companies earn millions each year from brokering data. Experts estimate the data brokerage industry to be worth USD 246.09 billion in 2020. Additionally, their expected revenues are estimated to reach USD 365.17 billion by 2027.
While it would be nearly impossible to estimate individual data’s actual value, we can get an idea based on how much companies earn from advertising. For example, we can take a look at the total revenues for digital advertising in 2021 for the US. In 2021, the entire digital advertising revenue for the country totaled USD 190.4 billion. If we divide that by the total number of internet users in the US (roughly 298.8 million). The result is about USD 637.22 per person per year.
Before the Cambridge-Analytics scandal took hold, Facebook was estimated to earn USD 84 from each of its North American users per year and USD 27 per year from each of its European users. Multiply that by the number of users, which is 308 million Facebook users for North America and 195 million users in Europe. In the end, that chalks up to billions of revenue.
The numbers tell a story with alarming implications. The data brokerage industry is at the very top of the data economy when it comes to profitability. And it will only grow in sync with new technologies in the future. In addition, the data brokers that benefit the most from the trade are the companies that have direct access to information (e.g., Facebook and Google).
Data Brokerage and Privacy Concerns
The practice of compiling and selling individuals’ personal information raises a lot of privacy and security concerns. These concerns result in part from the lack of transparency in terms of what types of data are collected, from whom, and for what purpose. Additionally, the lack of comprehensive laws and regulations only leaves data brokers with zero accountability.
Majority of data brokers reason that their activities are fair compensation for the free services that they provide. From their perspective, it is the only way to offset the costs of maintaining free platforms, and the likes of Google, Facebook, or Twitter would not exist without it. If you think it’s finally time for you to make a switch, here are some of the best Facebook alternatives.
Data Privacy Laws
New data privacy laws have created restrictions when it comes to the type of data that companies can sell. But the practice of selling data itself remains legal. For example, new laws have limited brokers to selling data that has been stripped of personal identifiers. The goal is to convert the data into something that is “non-personal, de-identified, and anonymous.”
This is supposed to prevent untoward incidents related to data theft and misuse. Nevertheless, improvements in technology and the increasing volume of data available can make it all too easy to link that data back to certain individuals.
Most companies have switched strategies from selling data to selling targeted ads in response to legal and public pressure. Case in point, while Google does not directly “sell” data, it does convert the data into targeted ads. Data brokers then either sell these ads to other companies or used them directly on affiliate websites.
But many scholars have argued that these are merely semantic ploys that ignore the real issue. The form that the data takes, whether an Excel sheet or a targeted ad, makes no difference. The mere fact that the company used user data to come up with ads and the fact that they profited off it qualify the practice as a form of data brokerage.
What Can Consumers Do About It?
The practices of the data brokerage industry are largely unregulated and undocumented, and they are practically impossible to avoid completely. Essentially, the only thing you can control is your approach to the situation. Knowing that data brokers are everywhere, you can either: ignore the practice, employ extra steps to protect your data, or earn profit from providing data.
Some websites are more transparent about the information that they collect than others. These websites let you know the data points they plan to collect from you. They also offer you the option to opt out of the data collection. Examples of the more transparent data brokers include 411.info, Acxiom, CoreLogic, Datalogix, and eBureau.
If you want to take additional measures to protect your privacy, you can turn to special programs to combat intrusive attempts. Services like Reputation.com or DeleteMe offer to prevent data brokers from collecting your data. These services will monitor your system to keep your data safe and tell you who’s been tracking you. Most are subscription-based and can cost you between USD 100 to 500 per year.
On the other hand, data privacy isn’t a concern for some people. In that case, you might be interested in profit from the data they collect from you. Special apps like the Nielsen Computer and Mobile Panel app pay you to track your online activities. Still, other apps reimburse you for answering consumer-related surveys that do not necessarily ask for your personal information. Just don’t expect massive payouts since most can only offer returns of USD 300 per year at best.
Final Thoughts on How Data Brokers Profit from Your Data
Data brokers’ clandestine method of operation poses significant privacy and security risks. But the sheer profitability of the business and the ease of access that data brokers have only driven the industry further. It will take a long time before legislation and regulation can keep up with the data brokers. But even these regulations cannot fully prevent data brokers from acquiring data that they want.
However, while there is little to be done about the issue at the moment, you can still take steps to at least reduce the amount of information they can collect on you.