This paper presents a theoretical model to analyze the privacy issues involved in business models for location-based mobile services. We report the results of an exploratory field experiment in Switzerland that assessed the factors driving the net payoff to users of mobile businesses. We found that (1) the personal data disclosed by users has a negative effect on user payoff; (2) the amount of personalization available has a direct and positive effect, as well as a moderating effect, on user payoff; and (3) the amount of control over a user's personal data has a direct and positive effect, as well as a moderating effect, on user payoff. The results suggest that privacy protection could be the main value proposition in the B2C mobile market. From our theoretical model, we derive a set of guidelines to design a privacy-friendly business model pattern for third-party services. We discuss four examples to show how the mobile platform can play a key role in the implementation of these new business models.
Keywords: Privacy, Location-based services, Business model, Design science, Information systems, Personal data disclosed, User's payoff, Personalization available, Control over user personal data
New regulatory requirements, such as the guidelines given by the Organisation for Economic Co-operation and Development , and consumer concerns are driving companies to consider more privacy-friendly policies, often conflicting with their desire to leverage customer data.
On one hand, close proximity of potential customers and access to their real intentions regarding purchases of services has a real value for mobile location-based service providers, whose market revenues are expected to reach more than $12.7 billion by 2014 . On the other hand, the collection of data about consumers is constrained by their privacy right, which we refer to as "the right to be left alone; the right of a person to be free from unwarranted publicity; and the right to live without unwarranted interference by the public in matters with which the public is not necessarily concerned" (Black's Law Dictionary, as cited in ). Improper or non-existent control over disclosure can be the root cause of privacy issues and concerns about the privacy of personally identifiable information. The challenge for companies therefore is to reduce user data collection to the lowest sustainable level possible while providing a profitable service.
Much research to date has focused on understanding the relationship between user privacy concerns and the willingness to disclose personal information to online companies (e.g., , ). In this sense, user privacy concerns are found to be one major predictor of the willingness to provide personal information. We argue that previous research focuses only on user choice to either withhold or release personal information. This decision is one component of user payoff, which we consider as "the degree to which a mobile user perceives as fair the benefits he or she receives in return for the release of personal information"  if user's payoff is not assured, data security is in peril .
In the rest of the paper, we focus on location-based services offered in the Business to Consumer (B2C) market, such as navigation, information, advertising, tracking, and billing . We exclude emergency services from our analysis because users of those services deal differently with privacy concerns . Location-based applications open new opportunities for business models in the mobile sector. Hence, we primarily address an audience mainly composed of stakeholders in mobile services who seek guidelines to develop privacy-friendly business models. We also wish to raise the interest level of the broader audience of information system researchers and practitioners who are concerned with the impact of business model practices on the design of the IT artifact . …