Trapped in the Data-Sharing Dilemma

Social log-ins offered by large online platforms can help websites win users in the short term, but this may come at a price.

Managing passwords and user credentials for a host of websites and apps has become increasingly challenging for consumers of digital content and services. To address this annoyance, large online platforms allow unaffiliated websites to authenticate users through a shared log-in — for instance, “Log in with Facebook.” However, such log-ins are more than just a simple solution to ease user frustration. They allow the issuing platforms to track user activity across multiple unaffiliated websites and apps, while the content or service providers adopting the log-ins receive demographic and behavioral data that can help them improve user experience.

Does this setup benefit all parties involved? Sometimes. But in many cases, providers become trapped in a data-sharing dilemma: They may have short-term incentives to adopt such log-ins but suffer negative economic impact in the long run.

The Limits of Data Sharing as a Profitable Strategy

We recently analyzed the competitive dynamics at play by creating a formal game theory model, which rests on the notion that sites adopting these log-ins typically face two types of competition. On the one hand, content and service providers addressing the same special interest (say, sports news websites) compete for users. It is usually this type of competition that prompts sites to use shared log-ins; they do it to offer a better and more personalized user experience. On the other hand, the issuing platform and the special interest providers adopting the log-ins are in competition for targeted advertisements. For example, a sportswear company may increase its advertising intensity on a sports news website or a social network, depending on where it can generate more successful advertising matches. In this case, sharing usage information through the log-in is likely to benefit the issuing platform more than the special interest providers, because more detailed user data provides relatively more help to the platform in increasing its ad-targeting ability. While a special interest provider can readily place targeted ads due to its thematic focus, the issuing platform’s audience is more diverse, which makes it more difficult to select the right ad for the right user.

Source: MIT Sloan Management Review

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