I was astounded to see the misstatements and misapplication of math in a recent Atlantic blog post called “How Much Is Your Data Worth? Mmm, Somewhere Between Half a Cent and $1,200.”

For his back-of-envelope calculations about the value of personal data, Alexis Madrigal writes, “User profiles — slices of our digital selves — are sold in large chunks, i .e. at least 10,000 in a batch. On the high end, they go for $0.005 per profile, according to advertising-industry sources.”

The dollar value isn’t crazy—a CPM rate of about five cents is on the low end—but he has got the nature of the transaction precisely wrong. Advertisers place ads with content providers like Facebook, Google, and ad networks. The latter direct those ads to their visitors, trying to get ads to the people the advertiser wants to reach. They do not sell the information they use to guess at what interests consumers—consumers’ profiles, to whatever extent they exist.

If content providers sold data about their visitors to advertisers, this would undercut their own role in the advertising business. There wouldn’t be a second sale to make. And doing so would require a radical re-engineering of targeted advertising, which is largely cookie-based. The purchaser of the profile wouldn’t know how to find the subject of the profile in order to deliver an ad.

Madrigal repeats several times that “profiles” are “sold.” It’s a highly misleading characterization, creating the impression that dossiers of information about people are circulating the Internet on a strange black market. On the contrary, profiles are held—not sold—by content providers and advertising networks. There are privacy concerns enough with that business model. We don’t need it mis-described.

I probably would have let this pass. Madrigal isn’t the first to get the advertising business model wrong. (And he hasn’t repeated the error that I know of.) But then comes the bad math.

Writes Madrigal:

[L]et’s not forget the rest of the Internet advertising ecosystem either, which the Internet Advertising Bureau says supported $300 billion in economic activity last year. That’s more than $1,200 per Internet user and much of the online advertising industry’s success is predicated on the use of this kind of targeting data.

Personal information is one input into part of the online advertising. It makes no sense to assign all the value from the entire ecosystem to that one input. The auto industry is about a $400 billion industry, and there are about 250 million car tires sold in the U.S. each year. This does not mean that tires are worth over $2,000 each.

The idea, evidently, is to make the case that consumers are losing a lot in the advertising ecosystem today. That may or may not be true. I’d like to see it shown in the success of a company like Personal or others in the Personal Data Ecosystem, which could re-jigger the personal-data > free-content bargain. But I don’t think that misstating how advertising works and exploding the value of personal data is a good way to make the case for change.

NebuAd is dead. The company‘s plan to track users through their ISPs for the purpose of targeting advertising met with public and congressional concern that ultimately led to its demise.

I believe that ISPs should stick to serving bits and not get into the business of serving or helping to serve ads, so I’m glad to see NebuAd’s model fail. I’ve been made aware by a similar company – Phorm – of the privacy sensitivity they design into their system, but the answer for me is still “No, thanks.”

In terms of policy, this story is mixed. Fans of government involvement probably believe that concerns expressed by public authorities caused NebuAd’s partners to pull out. ISPs also responded to public concerns expressed directly and in the media, of course, and I believe that consumers’ passive reliance on government authorities for protection is in error.

The Progress & Freedom Foundation has just launched the new Center for Internet Freedom.  CIF offers an alternative to the proliferation of advocacy groups calling for government intervention online by offering timely analyses and critiques of proposals that diminish the vital role of free markets, free speech and property rights.  We aim to drive the Internet policy debate in new directions by emphasizing a layered approach of technological innovation, user education, user self-help, industry self-regulation, and the enforcement of existing laws consistent with the First Amendment.  Such an approach is a less restrictive—and generally more effective—alternative to increased regulation.  

Here are some of the issues I’ll be working on as CIF’s Director in conjunction with my esteemed colleagues Adam Thierer, Adam Marcus, and adjunct fellows: 

• Defending online advertising as the lifeblood of online content & services, especially in the “Long Tail”;
• Emphasizing market solutions to problems of privacy protection, especially regarding the use of cookies and packet inspection data;
• Protecting online speech and expression both in the U.S. and abroad;
• Defending Section 230 immunity for Internet intermediaries;
• Opposing online taxation and legal barriers to e-commerce and digital payments, especially at the state and local levels; and
• Ensuring that Internet governance remains transparent and accountable without hampering the evolution of the Internet.