Where 2.0 and the lessons of Hong Kong’s Octopus

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One of the few online publications that I pay to subscribe to is the South China Morning Post. Whilst we in the west have been focused on the Afghanistan and the continuing US government-assisted corporate meltdown at BP; another scandal was breaking in Hong Kong played out on the pages of the South China Morning Post.
My Oyster card for LDN & my Octopus card for HKG
Octopus is Hong Kong’s equivalent of the Oyster card; ok that’s a lie, Octopus is actually so much more. It’s use goes beyond travel to encompass electronic payments for cinema tickets and popcorn, convenience stores and McDonalds restaurants. In addition the card also operates an awards scheme kind of like Nectar cards. Octopus has an almost universal ubiquity with 95 per cent of people in Hong Kong aged between 16-65 years old in possession of an Octopus card.

This meant that the company who run Octopus have a wealth of purchase and location data in a very similar way to that of many location-based services like Foursquare and Gowalla. The key difference in this respect is the how; Gowalla and Foursquare rely on GPS and cell-tower triangulation, whereas an Octopus card records this data by interacting with RFID readers at a point of sale or turnstyle in a train station.
Octopus debacle
Octopus sold the data of 1.97 million cardholders to third parties over the past four years netting 44 million Hong Kong dollars (just over 3.6 million pounds) in revenue from the transaction. At less than 2 pounds per contact that was a ridiculously low price. This data was then used by telemarketers to contact Octopus card holders with a view to selling them a number of different services.

This blew up in Hong Kong as outraged consumers decided that this was well outside the social and commercial contract that they had made with Octopus. The data sale prompted a government enquiry and Tony Hayward-like calls for Oyster CEO Prudence Chan  Bik Wah to resign.

It probably didn’t help things that this video had recently got a lot of publicity as mainland Chinese tourists were scolded by a tour guide to spend more in local shops and was a source of embarrassment to the Hong Kong administration. (The truth is a bit more complex as mainland Chinese sign up to subsidised tours with the understanding that their spending in designated shops will make up the difference, but the truth didn’t get in the way of an embarassing story). So there wasn’t a lot of love for sales and marketing.

What I found interesting was that the reaction is much more ferocious than anything that privacy terrorist Facebook has received so far. Because of this I think that there is a number of lessons in there for ‘where 2.0’ location-based services need to learn from Octopus. Consumers are already concerned about location information disclosure, a breach of that trust seems to provoke a savage backlash compared to conventional social networks. Unlike conventional social networks who have well established business models there may be more of a temptation to juice the revenue at the expense of the user base.

Selected articles from The South China Morning Post on ‘Octopus-gate’ (registration required)