“Goodies” in exchange for consumer information on the Internet: the economics and issues

A recent phenomenon in Internet marketing is the evolution of “virtual” organizations that provide free e-mail services or promotional rebates or even cash to “qualified” online consumers who are willing to interact with them. In order to qualify for such “goodies” the consumers provide these organizations information on their demographics, likes and dislikes, shopping/product preferences, etc., which the organizations, in turn, either sell to advertisers or use to target interactive advertisements of their corporate clients to the desired users. Although different terms have been used to describe the concept, from a business transaction viewpoint, these virtual organizations act as middlemen in collecting information from consumers, paying for the information, and in turn, selling it to corporate clients. We describe the various business models that have been adopted by such organizations, explore the economic issues of such transactions and the implications for consumer welfare. We explore the continued viability of the market in light of recent concerns regarding breaches in privacy of consumer information. Finally, we also explore the impact of different schemes used for pricing advertisements on the business models adopted by the organizations