Would Users Pay for Privacy?

In the keynote speech at yesterday's Geoloco conference on the future of geo-location services, venture capitalist Fred Wilson said businesses could profit from privacy, ReadWriteWeb reports:

"When you reveal your specific location, it's very important that you have control over that... There are business opportunities in privacy-related services," Wilson says. "The challenge is to get someone [whether business or consumer] to pay $2-$10 dollars per month to ensure that sort of premium privacy."

Large social networks would have trouble revoking the fine-tuned privacy controls users are used to, said Wilson, whose firm Union Square Ventures is invested in Twitter, del.icio.us, Etsy, and Disqus. But that's not a concern for startups which can start with a pay-for-privacy model.

Econsultancy's Patricio Robles points out that there is almost no acceptable way for a large social network to undo such controls. Users would see such a request as being closer to extortion than a reasonable shift in a business model, she argues.

But while it may be impossible for large social networks to profit from privacy, could startups? For better or worse, users are hypocritical about their privacy concerns: Facebook just got its 500 millionth user despite having a lower consumer satisfaction score than the IRS and despite repeated findings that even young people want more privacy. Why? Part of it surely has to do with scale: alternatives exist, but none has nearly as many of your friends signed up.

If a startup offers an innovative free service with a fee for privacy, its unique offering could lead to rapid growth. Once any scale is achieved, concerns over paying for privacy take a backseat to the practicality of using a popular service.

Plus, this isn't a new idea. We already enter purchase agreements where the default is sharing and there's a fee for privacy. Traditional phone companies charge to keep a number unlisted or hidden to Caller ID systems. The same goes for domain name registration: information about the registrant of any .com, .org, .net, etc. is available through a WHOIS query, unless you pay extra to have the domain registered by a third-party.

We already pay privacy premiums. The question is could a startup with a pay-for-privacy model ascend fast enough to prevent losing its business to a free or ad-supported competitor?

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Niraj Chokshi is a former staff editor at TheAtlantic.com, where he wrote about technology. He is currently freelancing and can be reached through his personal website, NirajC.com. More

Niraj previously reported on the business of the nation's largest law firms for The Recorder, a San Francisco legal newspaper. He has also been published in The Hartford Courant, The Seattle Times and The Age, in Melbourne, Australia. He's also a longtime programmer and sometimes website designer.

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