Addressing the Crisis of Confidence In Tech

Higher costs, growing skepticism and greater scrutiny. JL

Evan Clark and Adriana Lee report in WWD:

Part of the success of tech and the companies that have adapted to tech is that they’re getting raw materials free from consumers. The fear is that’s going to end. Margins are going to shrink because there will be more rules on the use of data, less access to data and companies will have to pay more. Dense terms of service, complex privacy settings or automatic opt-ins for unwanted features can seem like hostile acts. Greater care and transparency work as powerful differentiators. Businesses capable of conveying that they’re built to serve people, not pull one over on them could stand out.

The world is ready to log off — or at least, fed up enough to wish it could.

After 20 years at the pinnacle of consumer culture, technology itself is facing a crisis of confidence that is much deeper and more complex than any of its prior setbacks and data privacy snafus.

Technology’s issues have become more numerous and varied, encompassing not just a single industry, but a pillar of modern life.

* Facebook’s been scandalized by how its data was used to inappropriately target voters.

* Hackers regularly attack from the shadows, most recently breaking into the data vaults at Hudson’s Bay Co. and Under Armour Inc. and Sears Holdings Corp.

* Amazon’s seemingly ceaseless expansion has led to increased scrutiny, with President Trump keeping the heat on with fire-breathing tweets.

* And smartphones and social media have been blamed for everything from digital addictions to shorter attention spans to increased anxiety.

As tech grew up, it moved from geeky and remote to hip and innovative. Now the sector is plugged in and filthy rich, settling uneasily into its role as a key part of the new establishment.

The digital genie is not going back into the mainframe. But people have become less enamored, leaving average users, Silicon Valley (and brands that rely on the connection between the two) to muddle forward.

Facebook has been pushed to the forefront by its scandal around Cambridge Analytica, which secured information from millions of Facebook accounts and used it to target voters in the 2016 election. The scope was massive: As many as 87 million users could have been affected, up significantly from the 50 million users previously estimated, according to a blog post Wednesday by Facebook’s chief technology officer, Mike Schroepfer.

The post covered new changes to platform and developer tools that set limits on developer access to user data. The nine new updates cover Facebook logins, groups, event data and more.

“We believe most people on Facebook could have had their public profile scraped,” Schroepfer said, pointing to a look-up feature that uses phone numbers and e-mails. (Scraping is a web tactic to extract data.) Facebook has shut down the feature.

On a call with reporters, chief executive officer Mark Zuckerberg admitted that the company didn’t have “a broad enough view of what our responsibilities were,” and personally took the blame.

“I started this place, I run it,” he said. “I’m responsible for what happened here.” And yet he couched the sentiment, drawing on the complexity of “building something like Facebook, which is unprecedented in the world. And if we got this right, we would have messed something else up.”

The takeaway: Connecting billions of people is hard, and fixing the gaps and securing the network is a process, a job that may never end. So far, the ceo said he hasn’t fired anyone over the scandal, and he plans to expand the team of 15,000 people who work on security and content review to 20,000 by year’s end.

Zuckerberg testif(ied) on Capitol Hill. “This hearing w(as) an important opportunity to shed light on critical consumer data privacy issues and help all Americans better understand what happens to their personal information online,” said Rep. Greg Walden (R., Ore.) and Frank Pallone Jr. (D., N.J.) of the House Energy and Commerce Committee.

Lawmakers are feeding off an increasingly frustrated populace.

“Consumers are finally getting to the point where they’re saying, ‘No more, I don’t want it, let’s delete Facebook,’ or, ‘I want to punish the company,'” said Kit Yarrow, a consumer psychologist at Golden Gate University and author of “Decoding the New Consumer Mind: How and Why We Shop and Buy.”

But signing out of Facebook or dropping tech completely could be hard or impossible.

“We have changed our psychology through the use of Facebook and we are now, I would say, dependent on it,” Yarrow said. “People look at it like a lifeline to relationships. People have also been presenting this idealized version of themselves through Facebook, and they become attached to this persona and they don’t want to let that go. It’s almost like an avatar in a way, ‘That’s a me that’s relevant to me.’”

So it won’t be an easy or simple process, but Yarrow said change has come.

“All of this is OK, it’s normal,” she said. “It’s wonderful, in fact, that we’ve now seen the limits of what we’re willing to tolerate. And I’m not sure what shape it will take, but there will be pressure, where really collectively we all say, ‘OK, I think that’s about all we can manage with this — we need to see what’s going on; we need more transparency, accountability,’ and we’ll start to see the pendulum swing back.”

Tech’s image problems tend to crest and fall like waves, sweeping in and then retreating, again and again.

But the recent spate of major tech failures have created a tidal wave-like effect that’s been building for some time.

According to a 2014 Pew Internet & American Life survey, 91 percent of Americans “agreed” or “strongly agreed” that people had lost control over how their personal information was collected and used. Roughly 80 percent of social media users were worried about advertisers and businesses plucking their social data, and 64 percent believed the government should do more to regulate advertisers. In another survey last year, just 9 percent of social media users reported being “very confident” that social companies would protect their data. About half of users were not at all or not very confident their data was safe.

The stakes are even higher now, with implications ranging from the financial to the political to safety. On one end, Uber and Tesla face the literal and figurative wreckage of recent self-driving car fatalities. On the other, Facebook contends with its latest data privacy scandal. In between lie many complex layers representing hundreds of millions of user data profiles and billions of discrete facts about how average people live and operate online.

Reconciling that with the evolution of modern retail is a hard calculus. Customer data is the lifeblood of e-commerce and plays a growing role in physical stores as well, fueling recommendations, personalized services and more. But that flow of information doesn’t work if people can’t trust their brands and service providers.

“What’s going on is real,” said Karsten Weide, program vice president of digital media and entertainment at IDC. “People are getting more concerned about privacy, and the reason is that the data breaches have become much more frequent than just once a year. I think this is here to stay.

“As we get closer to the midterms [elections], this is going to become more of an issue,” he said. “A lot of politicians will be using this for grandstanding, and so there will be calls for more privacy regulation. There will even be calls for the breakup of Facebook, the breakup of Amazon, the breakup of Google, perhaps. In Europe, they’re further along than we are.”

Next month, the European Union’s General Data Protection Regulation will go into effect, requiring companies to be more transparent with users about the data they collect and how they’ll use it. The rules also give consumers more control over their own information. Some social media companies plan to take the EU compliance standard beyond Europe and apply it universally.

“We’re taking a global approach to GDPR, to help ensure all members benefit from increased control and clarity,” said a LinkedIn spokeswoman.

Facebook will as well, said Zuckerberg, who noted that the company already complies with much of the GDPR. As for exactly how much, he wouldn’t say. “We intend to make all the same controls and settings available everywhere, not just in Europe,” he explained, but with the caveat that formats may differ by markets and according to regional laws.

Weide said the rest of the world could look to Europe as a template, and pointed to both Canada and Australia, which are looking at privacy regulation, as examples. He expects at least some companies to go above and beyond, like LinkedIn, which could help address some of the public’s discomfort.

While Facebook was pushed into the spotlight over data for the Trump campaign, it feels like the President himself is trying to drag Jeff Bezos’ Amazon into center ring.

Trump continued his Twitter attack on the e-commerce giant this week.

“I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy,” Trump tweeted. “Amazon should pay these costs (plus) and not have them bourne [sic] by the American Taxpayer. Many billions of dollars. P.O. leaders don’t have a clue (or do they?)!”

That puts the President at odds with at least some of the experts in his own administration. The blog of the Postal Service’s Inspector General noted that “growth in packages is most welcome, especially as it continues to lose letter mail volumes.”

It remains to be seen if Trump can keep his attention trained on Amazon long enough to enact any real policies regarding the company’s relationship with the post office, its tax treatment or its general size and influence in the economy.

But his attacks on Amazon have had real stock market impact. Since Trump’s beef with Amazon resurfaced last week, the high-profile tech stock is down 3 percent to 1,451.75, shedding nearly $22 billion in market value and spooking Wall Street traders overall.

Consultant Jonathan Low, partner at Predictiv, said Trump’s attacks are really directed at The Washington Post, which Bezos owns personally, rather than any antitrust impulse against Amazon. (Trump’s latest tweet on Amazon bears this out, describing the Post as the web giant’s “chief lobbyist.”)

“The underlying issue is potentially much more devastating — and I think it has to be not with Facebook’s abuse in data and not with Amazon taking over the world — it’s with the fact that every business today is a tech business,” Low said.

“And part of the success of tech and the companies that have adapted to tech is that they’re getting their raw materials for free from consumers and I think the fear is that that’s what’s going to end,” he said. “Margins are going to shrink dramatically because there will be more rules out the use of data, where there may be less access to data and companies will have to pay more. Consumers may even be compensated for their data somehow.”

A newer breed of startup has begun to take hold to address data privacy through blockchain technology, and they’re getting plenty of attention in the financial, healthcare and retail sectors. Groups like Hypr, Token and Shop believe that decentralizing data, so there is no single repository or overseeing organization, is key to safeguarding people’s information. The premise appeals to players of all sizes, including payment giants like MasterCard, which has been linking up with blockchain companies, and even Zuckerberg himself.

In January, the 33-year-old Facebook ceo pledged to fix the myriad issues plaguing his platform — such as the “fake news epidemic” — he also said he would explore encryption and blockchain. Hindsight offers extra context, as it’s clear now that Zuckerberg had long known about Cambridge Analytica by this point.

Blockchain startups like Shop, a cooperative that won Shoptalk’s Start-up Pitch Competition last month, believe in a tokenized approach to security and data privacy: Digital tokens act like a set of keys that give users access and control over their data. Shop aims to create an economy of sorts, with tokens acting as both retail currency and a basis for loyalty programs.

In assessing the landscape today, one particular tech giant stands out to Shop ceo John Wantz: “I think my respect for Apple is growing lately. Because governments are so intrusive on telecommunications, it had to develop a position [saying,] ‘Either we’ll be completely open like Android, and let any government in any country have carte blanche access to the data, or we decide whose side we’re on and maybe we cryptographically secure [it].” The way the iPhone maker built its technology and architecture impresses Wantz — it uses cryptography in various parts of its software, including FaceTime and iMessage.

When Apple launched Business Chat for iMessage last week, its approach to user control stood out. People can mute or silence brands, and they initiate all chats, not the companies.

“Another major difference with Apple versus the free-to-use, or monetized companies like Google and Facebook, is that Apple doesn’t have a business model with monetizing data flow,” explained Rurik Bradbury, global head of conversational strategy at LivePerson, which helps retailers integrate with the new iOS business features. “The data in the messages is encrypted up to the point where it hits the brand, and then encrypted on the way back again. So they’re not looking at what’s happening in these conversations, and they don’t have any interest in looking.…That’s quite positive for brands who don’t want to have their connection to customers digitally mediated.”

Those relationships are more fraught than ever. Today, the need for privacy safeguards and the demand for services can work like opposing forces. “Consumers say, ‘I don’t mind giving away my data, as long as I know what data that is, and what I get in return,'” IDC’s Weide said. “So you have to talk about the quid pro quo, something of value you provide in return.”

In Facebook’s case, the value lies in the connection to family and friends, or perhaps benefiting from ads aligned with their interests. “Most of the content that Facebook knows about you, it’s because you chose to share that content with your friends and put it on your profile,” said Zuckerberg. “And we’re going to use data to make the services better, whether that’s ranking news feed or ads or search, or helping you connect with people through people who you know. But we’re never going to sell your information.”

He knows his company hasn’t done a good job of conveying that to people, and when it comes to public trust, such failures are a fundamental problem. But it’s also an opportunity for businesses, if they’re clear about the data they gather, how they will use it and how they will protect it.

Today, dense terms of service, complex privacy settings or automatic opt-ins for unwanted features can seem like hostile acts toward consumers. Against that backdrop, greater care and transparency work as powerful differentiators, especially for customer relationship-oriented sectors like retail. Businesses capable of conveying that they’re built to serve people, not pull one over on them — and actually mean it — could stand out.

And so with another turn of the tech wheel, changes in one area might be opening up new opportunities in another — and perhaps a chance for fashion brands to benefit from a fresh start.