When Good Data Is Bad Business

It is a truth universally acknowledged that any good data analyst is perpetually in want of more good data. Unfortunately, sometimes the economic rationale for acquiring more data is misguided. Take the representative case of The New York Times.

This week it was reported that The Times is requiring online readers to submit more of their personal and household demographic information. The new registration form, which was updated two weeks ago, asks readers to submit items such as their household incomes and birthdates.

As you may know, this is not the first time the newspaper has altered its online content policy. Over the course of the last few years, the newspaper has struggled to accurately value its online content, and its moves have been closely watched.

While competitors such as The Wall Street Journal have managed to create a decent business from paid online subscriptions, The Times has stuck to its advertising-driven model. Instead of money, The Times asks only that you look at some ads and submit some data. Clearly, this publication is well within its rights to ask for the information.

The Times’s economic rationale for collecting data is, however, flawed. Just because data can be collected doesn’t mean that it should be collected. A common mistake among marketers is the impulse to collect data for its own sake, without regard to economic cost-benefit calculations. Even a cursory look at The Times’s economics reveals that this latest data collection effort is a mistake.

When a marketer collects data, this data comes at a cost. This cost can be measured in the time it takes a telemarketer to ask the question or the cost of printing a survey and including it in a mailer. This cost can also be measured by the decreased conversion rate caused by adding requests for personal information to an online form.

With online registration processes at HotSocket and at Yoyodyne, my fellow marketers and I spent quite a bit of time quantifying how changes in an online form affect the rate at which visitors convert into registrants. Based on that experience, I can tell you definitively that there is an inverse correlation between the number of questions you ask and the number of registrants you get. In other words, if you ask more questions, you get fewer registrants.

Fine, you might say. But each new registrant is worth more, right?

Because The Times asks more questions of its registrants, it can sell more targeted buys to advertisers, thus raising the price that it can charge. But let us consider an alternative. Instead of asking the registrants for the answers to these questions, what if The Times had gone to a third-party data bureau and simply appended this data to its files? Demographic data of this sort is a commodity and can be had for pennies per record. Had The Times done this, it would likely have gotten more accurate data, because appended data is much more likely to be accurate than online-form data, which is notoriously unreliable. So, it could have expected to raise the price of future advertising even higher. In addition, The Times would not have suffered from the drop-off in conversion rates, which occurs when too many questions are asked.

In economic terms, The Times could expect to make more advertising dollars in the future by measuring its cost as the cost of appended data rather than that of lost registrants. It would be creating revenues without harming its asset. Clearly, The Times’s online enterprise is valued by its total number of subscribers.

The only other way for this effort to make sense would be if The Times simply sold the data it collects from registrants, thus monetizing this asset immediately. The Times, however, adheres to a strict policy of not selling data to or sharing it with third parties. Fair enough. So why, again, are these questions being asked? My guess is that there’s an analyst over there who would really like to have some more good data.