Economics of Free Mobile Applications: Personal Data and Third Parties

Abstract

Personal data are essential to Internet companies, but their involvement in the smart-phone apps market remains relatively unexplored. We provide empirical evidence on the strategies of free apps by studying whether the collection of personal data and use ofthird parties are combined with more traditional revenue sources such as advertising and freemium. We combine data collected via Google Play Store with data on privacy-related behaviors provided by Privacy Grade to create a unique dataset we use to measure app monetization. One important aspect that we study is the business-to-business third party market. We investigate whether personal data are more likely to be collected by apps that use third parties such as companies offering social network services or access to advanced services. We use an instrumental variable approach to address potential endogeneity of data collection. Our results show that data collection is negatively associated with freemium or advertising business models.

Keywords: Economics of Mobile Applications, Economics of Privacy

JEL Classification: D82, D83, M31, M37