Why I Believe Selling User Data is a Bad Long Term Business Strategy

I have talked a few times about how I think there are many tech stocks out there that arent worth anything near the valuations they are given, especially companies showing little to no revenue. The big bet is that these companies will be able to make money either marketing with advertisements towards their user bases or sell their data to bigger firms that plan on doing the same. I believe in the long term this is a bad strategy and an even worse bet if you choose to invest in these companies.

I think we need to establish a baseline so I want to use internet advertising over the years with banner ads, popups ect. There is a very real decline in the long run for what companies are willing to actually pay for advertisements online. Many companies lost faith in online advertisements as a form of brand awareness and ultimately stopped entirely. Even now with companies like Unilever, we see them threatening to pull from platforms like Youtube entirely because they think its not worth it. In the beginning these same people that are now pulling out were willing to pay a lot, I believe we will see the same thing happen with user data.

With so many companies now relying on selling user data to make money, the amount of data collected is ultimately going to be worth less. If there is so much on the market, companies arent going to pay top dollar for it. So other companies who make a living solely by collecting user data to sell are going to see big drops in revenue. There will always be a market, but I believe it will be a much smaller one. You could argue that the companies you are investing in are tech companies so the bet is they will do something else, but many of them dont even have the cash to buy out other profitable companies to add to their portfolio.

In addition you also have to think about the customer whose data you are actually selling. There is a real cost to selling data because in a way you trade the trust of your customer for financial gain. Do this too much and you could eventually have a mass exodus from your platform. I see many people my age leaving Facebook because they no longer feel safe having profiles on there. They don't trust the company and they don't trust how their data is being handled. Facebook in particular has seen the registration of users slow in recent years and this may be a contributing factor.

Companies like Snapchat and Twitter might be able to pay the bills now selling data and ads, but for how much longer will that be the case if those markets drop significantly? I dont think Twitter will go away because when it comes down to it they will ultimately just have to pay for server costs and a small team, but in my opinion believing they will becoming this massive company is a bad bet. For many of these companies doing the same thing I think that the only reason they are publically traded is because the original investors wanted to drop the bag on someone else. I dont think selling data is going to continue to be super profitable in the long run and we are already seeing effects of that now.

-Calaber24p