Where Business Model Uncertainty and Privacy Collide

Data Privacy

Where Business Model Uncertainty and Privacy Collide

By Steve Silvius     Apr 3, 2015

Where Business Model Uncertainty and Privacy Collide

Recent media coverage, conference discussions and proposed legislation make clear there is much angst in our space around privacy issues. Much of the coverage has focused on ways free tools “spread haphazardly” via click-through agreements, data breaches and related security concerns, or on advertising to students.

However, underlying all of these concerns is uncertainty around an edtech business model that promotes software as free. Unless and until companies address that uncertainty clearly, valid privacy concerns will remain. Parents and school officials know your business needs to make money, and they want to know how you plan to do so. They want to know if that plan is ethical. They suspect free is not sustainable, and they are right.

Traditional freemium doesn’t work well in K-12. Consider this scenario: You’re launching a K-12 startup. You decide to go with the archetypal “freemium” model where you build a product and convert free users to premium. Now, let’s do some math:

  • Assume there are four million K-12 teachers in the US;
  • Assume this free product will get adopted by 25% of them (levels of adoption rivaling Instagram);
  • Assume 10% of those will upgrade to the premium product (almost any app would be jealous);
  • Assume we can charge $20 per month (twice as much as Dropbox Pro);
  • Total = $24 million in annual recurring revenue.

Trust me, this is not a scenario you want to pitch to investors. Each assumption is extremely generous and the revenue ceiling is still low. Factor in the more realistic scenario where the business reaches 100,000 teachers, converts 1%, and charges less and you get the picture. Companies know this and generally do not intend to pursue this type of freemium model.

The B2B-inspired freemium model in which you cultivate teachers as marketing leads and sell your product up the chain to administrators remains an open question. Unsurprisingly, facing this business model uncertainty, as companies often try to reserve rights that might provide value if they need to reorganize the business or to pivot. This can cause the businesses to be either unsure or tight-lipped about what their business models actually are.

Many parents and consumers now understand that nothing is truly “free.” They have heard the saying, “if you aren’t paying for the product, then you are the product.” So when they see a “free” edtech product, they may draw a connection to familiar consumer business models such as Google or Facebook where companies sell advertising, or collect and sell massive amounts of data on their users to others who sell advertising.

This makes people nervous--and rightly so for the following reasons:

  • Education, like healthcare, is a personal and sensitive realm;
  • Students are captive at school and so in the digital environments mandated by schools;
  • Society has long protected children from being over-marketed to;
  • Many uses of big data sets strike the average citizen as creepy.

These dynamics have coalesced into concerns about privacy throughout the K-12 space. The industry is attempting to address components of concerns like security, advertising, privacy policies and click-through agreements. None of the steps that companies take will be sufficient if they do not also forthrightly explain their business model and the ways that model intersects with the use of data.

To assuage the fears parents and others have about education data, edtech companies should be radically transparent about their business model, and how they collect and use data, who controls that data and how the company makes money off that data. If the company does not plan to “monetize” that data, then what steps does it take to keep that commitment? Finally, they must be transparent about how they do plan to make money so that the business can continue to act as a trusted custodian of that data.

Transparency demonstrates humility and respect for students and parents. Just because you think that your cool idea for use of personal information about children is valuable doesn’t mean that others will agree. Your profits depend on that value, whereas parents or schools may have vastly different priorities.

If you are pursuing a creative business model, you should explain it clearly and fully. If you are giving software away for free, you should say why. If you plan to collect and use massive amounts of data to generate revenue for your business, do us all a favor—explain how and be ready to accept it if people come back and say, “sorry, that is not enough value for us.”

Steve Silvius is the co-founder of Three Ring, and a former teacher and researcher, in both cases, working with secondary students in mathematics. In his free time, he attends panels on student data privacy.

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