FreshBooks Aligns Data Collection with its Customers’ Interests

October 11th, 2006 by Alex Selkirk

I think FreshBooks is attempting something very interesting.

[Freshbooks is geared toward small businesses and/or independent contractors. From their Manifesto: “Our mission is to deliver fast and simple invoicing and time tracking services that help you manage your business.”]

They are asking their users to optionally classify their profession/industry. In return, participants gain access to business metrics for their industry, based on aggregations of data collected from the Freshbooks user population.

The examples they give are

  • “What is the average invoice size for [your profession]?”
  • “How long does the average [your profession] take to get paid?”
  • “What is the average monthly revenue of other [your profession]?”

I would imagine this will raise many a small business eyebrow. However, they still feel thin and generic to me. I want to know:

  • “How many years of experience do other professionals in my industry have?”
  • “What are their industry credentials? Education? Training? Skill set? Work experience?”
  • “What is the quality of their clientèle?”
  • “Where is there operation based?”
  • “What kind of capital investments have they made?

Collecting data from users is not new. Collecting data from users to provide a service is not new (if you consider targeted advertising a user service). However, there is something unique about what Freshbooks is doing that differentiates it from the various other data collection efforts on the internet. They have figured out a way to provide data to their customers that provides tangible, monetary value to their users; value that their users would probably be willing to pay for, and value that is difficult (expensive!) if not impossible for them to get anywhere else.

Furthermore, Freshbooks’ model turns the tables on data collection and privacy. In place of a parasitic relationship where Internet Company as Big Brother spies on users in order to make big bucks selling Targeted Advertising, a symbiotic exchange is established where users happily provide personal data in exchange for a tangible good in return. Sounds too good to be true? It probably is in the immediate future.

It’s worth noting that

  1. Freshbooks is collecting data from a real service they provide (as opposed to polls and surveys). This minimizes the risk of collecting bogus data.
  2. Because FreshBooks implies they will only tell you about the industry you indicate (thereby encouraging you to provide an accurate categorization or be given useless data) data inaccuracies due to user information distortions should be minimal.
  3. Freshbooks is being at least semi-transparent about what they’re doing with the data they collect. As a result, Freshbooks is establishing a trust relationship with their users, which turns the data they collect from their users into a renewable resource, as opposed to one (advertising) that runs dry as soon as users find out they’re being spied on.I say semi-transparent because:3a. Freshbooks is not being completely forthright about who else they may or may not be selling this data to.3b. Implicit is the fact that Freshbooks can also use this data to optimize their own business and pricing strategies.
  4. Although they are not charging for this data yet, the information (to any given customer) would probably be valued at at least $100s/year. (How Freshbooks might choose to monetize that value is a different story.) By contrast, the dollars that Freshbooks might have been able to get from selling targeted advertising for that customer’s eyeballs is unlikely to approach $100/year.
  5. Freshbooks reassures its users that their data is only used in its “anonymous aggregate form”. However, the term ‘data aggregates’ is so vague as to be largely useless. Freshbooks still doesn’t have a complete story about how they will protect the individual identities of their users.
  6. I’m not clear on how this new program jibes with the FreshBooks privacy statement, which under the heading “Ownership of Data Submitted to Active FreshBooks Subscriptions” suggests that user data is owned by the user, not by FreshBooks. How then does Freshbooks have the right to aggregate and share your data with other users? Does Freshbooks only collect data from users who opt-in to share/view data? If so, that severely limits their data pool. I wonder how many of their 90,000+ users are considered active and will opt-in…?

I’m very interested to hear if this sticks, and if their users are able to jump over the hurdle of giving up a little bit of privacy for a little bit of information. The relevancy of the data will presumably be a factor in continued participation.

What they should be doing:

  • Providing context about what’s missing: It is as important to understand who isn’t participating in providing data, as it is to know who is.
  • Provide context about their users: It is as important to understand the demographics, circumstances and nature of the other participants as it is to know what they raw accounting numbers are. After all, do I, as an small-town consultant really care what the big boys are charging on Madison avenue?
  • Taking a lot of care with the aggregates such that some sort of data-release scandal doesn’t come and bite them.
  • Refrain from using their data for parasitic reasons which undermine the trust relationship they’re building with their users.
  • Provide a way for users to cleanly and completely end their participation in the data collection program.

While time will tell what happens with the execution of this effort, I am excited by the attempt: A business that collects data from their users and returns to them business intelligence, rather than handing over the customer relationships they built to the highest pay-per-click bidder.

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