Monthly Archives: December 2014

Trusting Uber with Your Data

Screenshot 2014-12-09 12.14.54

There is a growing concern about companies that posses enormous amounts of our personal data (such as Google, Facebook and Uber) using it for bad purposes. A recent NYTimes op-ed proposed that we need information fiduciaries that would ensure data was being used properly:

Codes of conduct developed by companies are a start, but we need information fiduciaries: independent, external bodies that oversee how data is used, backed by laws that ensure that individuals can see, correct and opt out of data collection.

I’m not convinced that there has been much harm from all of this data collection—these companies usually want to collect this data for purposes no more nefarious than up-selling you or maybe price discriminating against you (or framed in more positive terms, offering discounts to customers with a low willingness to pay). More commonly, they collect data because they need it to make the service work—or it just gets captured as a by-product of running a computer-mediated platform and deleting the data is more hassle than storing it.

Even if we assume there is some great harm from this data collection, injecting a third party to oversee how the data is used seems very burdensome. For most of these sites, nearly every product decision touches upon data that will be collected or using data already collected. When I was employed at oDesk I worked daily with the database to figure out precisely what “we” were capturing and how it should or could be used in the product. I also designed features that would capture new data. From this experience, I can’t imagine any regulatory body being able to learn enough about a particular site to regulate it efficiently, unless they want a regulator sitting in every product meeting at every tech company—and who also knows SQL and has access to the firm’s production database.

One could argue that the regulator could stick to broad principles. But if their mandate is to decide who can opt out of certain kinds of data collection and what data can be used for what purpose, then they will need to make decisions at a very micro level. Where would you get regulators that could operate at this micro-level and simultaneously make decisions about what was good for society? I think you couldn’t and the end result would probably be either poor, innovation-stifling mis-regulation or full-on regulatory capture—with regulations probably used as a cudgel to impose large burdens on new entrants.

So should sites just be allowed to do whatever they want data-wise? Probably—at least until we have more evidence of some actual rather than hypothetical harm. If there are systematic abuses, these sites—with their millions of identifiable users—would make juicy targets for class action lawsuits. The backlash (way overblown, in my opinion) from the Facebook experiment was illustrative of how popular pressure can change policies and that these companies are sensitive to customer demands: the enormous sums these companies pay for upstart would-be rivals suggest they see themselves as being in an industry with low switching costs. We can also see market forces leading to new entrants whose specific differentiator is supposedly better privacy protections e.g, DuckDuckGo and Ello.

Not fully trusting Uber is not a good enough reason to introduce a regulatory body that would find it nearly impossible to do its “job”—and more likely, this “job” would get subverted into serving the interests of the incumbents they are tasked with regulating.

Human Capital in the “Sharing Economy”

Most of my academic research has focused on online labor markets. Lately, I’ve been getting interested in another kind of online service—namely for the transfer of human capital, or in non-econ jargon, teaching. There have been a number of new companies in this space—Coursera, edX, Udactiy and so on—but one that strikes me as fundamentally different—and different in an important way—is Udemy.

Unlike other ed tech companies, Udemy is an actual marketplace:  instructors from around the world can create online courses in whatever their area of expertise and then let students access those courses, often for a fee but not always. Instructors decide the topic, the duration and price: students are free to explore the collection of courses and decide what courses are right for their needs and their budget. The main reason I think this marketplace model is so important is that it creates strong incentives for instructors to create new courses, thus partially fixing the “supply problem” in online education (which I’ll discuss below).

Formal courses are a great way to learn some topic, but not everything worth learning has been turned into a course. Some topics are just too new for a course to exist yet. It takes time to create courses and for fields that change very rapidly—technology being a notable example—no one has had the time to create a course. The rapid change in these fields also reduces the incentives for would-be instructors—many of which likely to not even think of themselves as teachers—to make courses, as the material can rapidly become obsolete. Universities can and do create new courses, but it’s hard to get faculty to take on more work. Further, the actual knowledge that needs to be “course-ified” is often held by practitioners and not professors.

I recently worked with Udemy to develop a survey of their instructors. We asked a host of questions (and I hope to blog about some of the other interesting ones) but one that I think is particularly interesting was “Where did you acquire the knowledge that you teach in your course?” We wanted to see whether a lot of what was being taught on Udemy was knowledge that was acquired through some means other than formal schooling. In the figure below, I plot the fraction of respondents selecting different answers.


We can see that the most common reason is a mixture of formal education and on-the-job experience (about 45%). The next most common answer was strictly on the job experience at a little less than 30%. Less than 10% of instructors were teaching things they had learned purely in school.

These results strongly support the view that Udemy is in fact taking knowledge acquired from non-academic sources and turning it into formal courses. Given that Udemy is filling in a gap left by traditional course offerings, it is perhaps not surprising that the answers skew towards “on the job training” but it is even more pronounced than I would have expected. I also think it’s interesting that the most common answer was  a “mixture” suggesting that for instructors their on-the-job training was a complement to their formal education.

Online education and ed tech is exciting in general—it promises to potentially overcome the Baomol’s cost disease characterization of the education sector and let us educate a lot more people at a lower cost.  However, I suspect that business models that simply take offline courses and move them online will not create the incentives needed to bring the large amounts of practical knowledge into the course format; by creating a marketplace, Udemy creates those incentives. By having an open platform for instructors, it can potentially tap the expertise of a much larger cross section of the population. Expertise does not just reside within academia and Udemy—unlike platforms that simply take traditional courses and put them online—can unearth this expertise and catalyze its transformation into courses. Any by forcing these courses to compete in a market for students, they create strong incentives for both quality and timeliness.

Although having a true marketplace has many advantages, running marketplace businesses is quite difficult—they create challenges like setting pricing policies, building and maintaining a reputation system, ensuring product quality without controlling production, mediating disputes and so on. But taking on these challenges seem worth it, particularly as businesses are getting better at running marketplaces (see Uber, Lyft, Airbnb, Elance-oDesk, etc.). In future blog posts, I hope to talk about some other interesting aspects of the survey and how they related to market design. There are some really interesting questions raised by Udemy, such as how should instructors position their courses vis-a-vis what’s already offered, how they set prices, and on the Udemy side, how you share revenue, how you market courses, how you have your reputation/feedback system work, how you decide to screen courses and so on—it’s a really rich set of interesting problems.