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Profits vs. Privacy as Businesses Mine Consumer Data

Laurence Dutton | The Image Bank | Getty Images

Businesses are watching you—more than ever before.

Newly-armed with analytics technology, retailers, search engines and social networks are all eager to turn data into profits.

For one example of how they're doing it, consider the way rental car company Avis is courting road warriors. Avis Europe is using technology to offer just the right bargain on just the right car, and get customers to rent more often.

Tangled Web//Profits & Privacy - See Complete Coverage
Tangled Web//Profits & Privacy - See Complete Coverage

The secret sauce: analytics software. It finds patterns in a flood of data—insights that give businesses an edge. In Avis’s case, after looking at rental patterns and website browsing habits, the company is better tailoring e-mail marketing pitches.

It’s working. Since Avis began using IBM’s analytics software in its marketing programs, Avis has slashed marketing costs in half and boosted loyalty.

"We reported in the second quarter that we experienced 14 percent growth in our business analytics and optimization business," says Steve Mills, who leads IBM Software. "We think this is an area that's probably going to grow at least 2 times, perhaps even 3 times the overall I.T. industry over the next five years."

And Avis is not alone. Today, analytics software is a $25 billion market, and it’s growing fast.

"Analytics is not just a luxury these days, it's a necessity," says Boris Evelson, analyst at Forrester Research. "Large enterprises, especially large retailers, because we're talking about consumer data today, can't really survive today without analytics."

The future of analytics looks bright—assuming that, in the age of Facebook, consumers can get over that uncanny feeling that they’re being watched.

Police departments in New York and Memphis are using the software to guess where criminals will strike next. Businesses are using it to plan inventories.

How can investors cash in? There’s IBM, which is investing heavily in the analytics space. It just announced plans last week to buy retail analytics player Unica Corporation for $480 million.

Oracle is building its analytics arsenal, too. Adobe is pushing further into online analytics with its Omniture acquisition, and Amazon is a heavy developer of its own customized analytics technology.

But the most interesting plays could be small fries like Pegasystems and Microstrategy, which could be acquisition targets as the big guys continue to fill out their portfolios.

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Look for reports from Jon Fortt, Hampton Pearson, and Julia Boorstin, Wednesday August 18 through Friday August 20—part of CNBC's specal series "Tangled Web: Profits & Privacy."

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