In HBO's Silicon Valley, a start-up fights to create a business around data compression. The show sits right on the edge of reality and parody with outrageous personalities, barely pronounceable start-up names, and millions of venture capital dollars thrown around. What viewers may not know is that a real company has already created a data compression service, which Facebook (FB +3.77%) acquired last October for $120 million.
The company, Onavo, offers data compression to mobile users to help them conserve data usage and stay under their cellular plan's limits. By compressing images and other data and serving it through Onavo's private network, Onavo users can make the most of their data caps.
The path of the Internet to your phone using Onavo. Source: Onavo's website.
Because all of a user's mobile traffic routes through Onavo's servers, Onavo has an intimate knowledge of a user's behavior, app selection, and web history. This goldmine of information is more than Facebook could gain through its traditional services. And this is the future of the advertising-based web industry.
The history of 'privacy'
With the old Internet, websites were only able to track your behavior when you visited them. A website like Google (GOOG +2.71%) (GOOGL +2.85%) could only know what you searched for and subsequently clicked on. Then, little files stored on your computer called cookies made it possible for a website to track you across other websites. As other sites implemented Google Analytics to track their own traffic, and allowed for users to login with Facebook or make comments with their Facebook account, Google and Facebook could compile even more user data.
Taking control of the rest
Now, Google is building out its own fiber network to bring the Internet directly to consumers. Currently in Central Kansas City, Missouri, Kansas City, Kansas, Provo, Utah, and Austin, Texas, with plans for nine other cities, Google Fiber charges $70 per month for speeds up to 1 gigabit, and a free tier at traditional broadband speeds for only the cost of a $300 installation. The privacy policy for Google Fiber has apparently changed since 2011 when Google Fiber's terms of service used to state that it "does not store the content of your online communications or the content of data transfers." The current privacy policy for Google Fiber now does not associate your browsing data with your Google account (except by consent or law), but Google can harness the anonymous data to build advertising profiles.
While Facebook isn't building a fiber network for consumers, the acquisition of Onavo represents another way to capture all of a user's web traffic, especially as we consume more content through mobile devices. The value to a user is real, as those in developing countries buy more smartphones and those in developed countries hit data caps. And for many users, giving up such data isn't a big deal.
In search of new revenue
In the past, Facebook and Google have monetized the most obvious aspects of their business. A person searches for shoes, so display shoe ads. A person 'likes' a shoe brand, so display shoe ads. Now, with advertising data too dense for a human to sift through, algorithms will learn which consumers to target for a certain brand or product based on the whole of their browsing data -- not just the slice of web activity that these companies used to have.
A person viewed a tweet with a picture of a shoe on their phone? Display a shoe ad on each app and website they use. Through controlling the beginning of the Internet pipe, mobile or otherwise, these companies will become scarily efficient with advertising.
