Advertisers want information about your tastes and habits so they can decide how much they are willing to pay to advertise at you. That information is stored by your web browser on your hard drive. Did you know that every time you access a web page you freely hand over that information to a broker who immediately sells it to advertisers who then immediately use it to bid for access to your eyeballs?
Here’s how it works. Internet vendors, say Amazon, pass information to you about your transactions and your browser stores them in the form of cookies. Later on, advertisers are alerted when you are accessing a web page and they compete in an auction for the ad space on that page. At that moment, unless you have disabled the passing of cookies, your browser is sending to potential advertisers all of the cookies stored on your hard drive that might contain relevant information about you.
However, many of the really valuable cookies are encrypted by the web site that put them there. For example, if Amazon encrypts its cookies then even though your browser gives them away for free, they are of no use to advertisers.
That is, unless the advertisers purchase the key with which to decrypt your cookies. And indeed Amazon will make money from your data by selling its keys to advertisers. It could sell them directly but it will probably prefer to sell them through an exchange where advertisers come to buy cookies by the jar.
The interesting thing about the market for cookies is that you are the owner of the asset and yet all of the returns are going to somebody else. And its not because your asset and mine are perfect substitutes. You are the monopolistic provider of information about you and when you arrive at a website it is you the advertisers are bidding for.
How long will it be before you get a seat at the exchange? Nothing stops you from putting a second layer of encryption over Amazon’s cookies and demanding that advertisers pay you for the key. Nothing stops me from paying you for exclusive ownership of your keys, cornering the market-in-you, and recouping the monopoly profit.
File under “Feel Free To Profit From This Idea.”
(I learned about the market for cookies from Susan Athey’s new paper and a post-seminar dinner conversation with her and Peter Klibanoff, Ricky Vohra, and Kane Sweeney.)
(Picture: Scale Up Machine Fail from http://www.f1me.net)
Cheap Talk 
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October 24, 2011 at 10:06 am
MK
“If you are not paying for it, you are the product” is a phrase that seems relevant here. Anyway, in terms of consumer surplus you are definitely receiving returns on your asset.