Mobile data mining and the Twitter IPO

Looking through the weekend’s business coverage, most of the stories seemed to be about Twitter and its initial public offering. There were management stories, technology stories and rival stories. But a couple of the most interesting were about data mining.

Here’s one from the New York Times:

Once, only hairdressers and bartenders knew people’s secrets.

Now, smartphones know everything — where people go, what they search for, what they buy, what they do for fun and when they go to bed. That is why advertisers, and tech companies like Google and Facebook, are finding new, sophisticated ways to track people on their phones and reach them with individualized, hypertargeted ads. And they are doing it without cookies, those tiny bits of code that follow users around the Internet, because cookies don’t work on mobile devices.

Privacy advocates fear that consumers do not realize just how much of their private information is on their phones and how much is made vulnerable simply by downloading and using apps, searching the mobile Web or even just going about daily life with a phone in your pocket. And this new focus on tracking users through their devices and online habits comes against the backdrop of a spirited public debate on privacy and government surveillance.

On Wednesday, the National Security Agency confirmed it had collected data from cellphone towers in 2010 and 2011 to locate Americans’ cellphones, though it said it never used the information.

Selling information is apparently a good business for Twitter, according to the Wall Street Journal:

In its IPO filing Thursday, Twitter Inc. disclosed how much the microblogging platform earned from a lesser-known side business: $47.5 million came from selling off its data to a fast-growing group of companies that analyze the data for insights into news events and trends.

That is a small amount compared with the revenue generated from advertising, but Twitter’s data business has rippled across the economy. The site’s constant stream of experiences, opinions and sentiments has spawned a vast commercial ecosystem, serving up putative insights to product developers, Hollywood studios, major retailers and—potentially most profitably—hedge funds and other investors. Backed by millions of dollars in venture capital, hundreds of “social listening” firms have emerged.

“The economic impact of Twitter is massively bigger than whatever lies in their [IPO] filing,” says Rob Bailey, chief executive of Data Sift, a London-based social-data analytics company.

Social-data firms spot trends that it would take a long time for humans to see on their own. The United Nations is using algorithms derived from Twitter to pinpoint hot spots of social unrest. DirecTV uses Twitter data as an early-warning system to spot power outages based on customer complaints. Human-resources departments analyze the data to evaluate job candidates.

One opportunity may be on Wall Street. Dataminr Inc., which has raised $30 million in funding this year alone, has made serving traders its core business. It uses algorithms similar to those employed by hedge funds to conduct high-speed trading. Five minutes before news of last week’s Capitol Hill shooting broke on TV, Dataminr subscribers got an alert to take action—giving them a leg up on the news that led the S&P Index to drop by 20 points five minutes later.

Ad Age wrote the story last week about Twitter’s ability and potential to capitalize on data mining:

When thinking about Twitter’s future, almost all the focus is on advertising. After all, 85% of its sales came from ads in the second quarter. But some observers believe Twitter has lots of room to expand its other revenue stream: data.

In the first half of this year, Twitter collected $32.2 million through its data licensing deals with authorized resellers, an increase of 53% from a year earlier. That kind of growth is nothing to scoff at, but it was overshadowed by ad revenue, which more than doubled over the same period to $221.4 million.

Twitter said in its IPO filing that it expects data’s contribution as a percentage of revenue to continue to decline, presumably as ad revenue continues to blossom.

Still, Twitter is treating data like a precious commodity. In 2011, for instance, Twitter turned off the spigot that pumped tweet-data into Google‘s Realtime search.

Going public could raise Twitter’s status with advertisers and agencies, and more media spending will prompt more demand for its data, said Craig Elimeliah, VP of creative technology at agency RAPP. “There’s definitely a lot more planned around integrating Twitter into various aspects of campaigns and not just for the vanity of integrating Twitter,” he said.

While most people don’t seem to worry about where their data is going and who is getting it, yet another company with access to information going public raises several questions about where it should go.

What will be the most important is how companies, like Twitter, that can make a significant amount of revenue by selling information will chose to balance money and privacy.