The emerging market that could kill the iPhone

August 1, 2012: 5:00 AM ET

A handful of tech startups are competing for a foothold in the nascent market for personal data control. And that could mean major changes for the likes of Apple, Google and Microsoft.

By Francesca Robin, contributor

FORTUNE -- Internet users have heard plenty about third-party aggregators filching their data, spying on them via all manner of cookies and selling Web surfing data to unscrupulous marketers. Much less has been said about what users can do to control their personal information, let alone have a say in who can snoop around, poke into or use it.

Until now. A handful of tech startups are competing for a foothold in the emerging market for personal data control products. According to The World Economic Forum, personal data is the asset class of the twenty-first century; users should essentially view their data like "money in a bank." Forrester Research (FORR) projects that the nascent business of personal data management is worth billions and could grow substantially over the next 18 to 24 months. In the U.S. alone, over $2 billion is spent annually just collecting consumer data from third-parties. Companies such as Azigo, Mydex, The DataBanker and Personal.com are racing to cash in.

How would these personal data lockers work exactly? Picture a cloud-based "hub" that's part virtual safe and part personal digital assistant. This hub allows users to manage their online lives and store all their digital stuff: financial information, medical records, movies, music, and so on. Clever software controls access, making sure appropriate elements of a user's online identity are available to the right, trusted Web sites. Dave Siegel, author of Pull: The Power of the Semantic Web to Transform Your Business, argues these cyber vaults will eventually replace PCs, tablets, iPhones, and Microsoft's (MSFT) Windows and Apple's (AAPL) Macintosh operating systems. Yes, Google (GOOG) Android, too.

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Sound like startup swagger? Perhaps. But by 2016, there will be 3 billion Internet users globally -- almost half the world's population -- according to the Boston Consulting Group. Multiply these users and their digital dossiers over billions of records to grasp the magnitude of the idea. It's not hard to see why venture capital is paying attention. Steve Case is, for one. His company Revolution invested in Personal.com, which raised $7.3 million in January 2011 and added another $3.5 million to its coffers this March, according to Securities and Exchange Commission filings. Sing.ly, a competitor, put together $7 million.

Asked if it was difficult to raise the initial seed capital, cofounder William Heath of U.K.-based Mydex, deflects a bit: "We've got what we need," he says. "It isn't too hard to see that if you have enough users, there are various business models that could leverage [personal data stores]," says Paul Trevithick, cofounder and chief technology officer of Waltham, Mass.-based Azigo, a free web service that links all one's favored brands, ad preferences, catalogs and daily deal subscriptions into a personal vault. "We're right at the beginning of this process," says Mydex's Heath, "but can clearly see all the ingredients for a perfect storm."

The crucial question appears to now be when such technologies are likely to break into the mainstream. Drummond Reed, founder of Connect.me, says a "killer app" will be the catalyst. The first service that requires a personal data locker and a personal data network to work will signal that lockers have become prime-time players. His firm is working on The Respect Trust Network to put this framework in place. It works like this: Instead of signing on to a bunch of sites and juggling dozens of passwords and open browser tabs, you'll sign-on once and connect to your "personal channel" -- the locker. From there, you can access your menu of shopping, banking or blogs, without ever leaving the network. It's scheduled to launch in late 2013.

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Netscape and McAfee veteran Cameron Lewis takes a different approach. In 2011 he positioned Statz.com as a web-based client where consumers create a broker account -- similar to Schwab (SCHW) or E-Trade (ETFC) -- and manage a portfolio of their data to sell directly to marketers. Lewis describes this model as a first-of-its kind "board of trade," closely aligned with HP Labs' (HPQ) strategy, detailed in a report titled "Paying Individuals According to their Privacy Attitudes." When Statz.com couldn't find more funding, Lewis started The DataBanker, an outfit based on a similar idea.

Although the advertising-supported Internet comprises over 2% of U.S. gross domestic product, the very idea that consumers should have the option to profit from or control their personal data is fairly radical. And critics of data lockers have been swift to dismiss the idea. Alan Reiter, president of Wireless Internet & Mobile Computing, a consulting firm, was explicit: "Frankly, I can't see many or any of these companies succeeding," he wrote in a CMO Site blog post, noting that consumers already freely give away their data on Facebook (FB), social networking sites, and agree, with or without consent, to data capture.

How then to profit? Kaliya Hamlin, a privacy and user-centric advocate and executive director of the Personal Data Ecosystem Consortium, shared sections of an unpublished report "Personal Data Landscape," which outlines three primary business models. As an example, data stored in lockers or accessed via real-time Web browsing can be explicitly for sale-by-owner, or brokered through third-party vendors who sell the information to advertisers. Or, with data aggregation services, users pool their data with others into a larger repository that's sold (or shared) with businesses and services. "There are likely many more models," stresses Hamlin.

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Azigo's Paul Trevithick offers a nuanced position, reasoning that advertisers will adjust their relationship with consumers because it's in their best interest to do so. If customers become a source of quality data, the need for dodgy data mining is minimized. Which is David Siegel's point. The great migration of personal data to the cloud has reached a critical phase. What will seal the transition? "When smartphones become…dumb," he says. "When a company like LG, or Samsung, or HTC makes a phone that has no local storage and gets everything from the web then the era of the dumb phone will begin." At that point, so goes the argument, a personal locker will become the center of the experience of using any device.

According to Siegel, Apple will then have to start making data lockers that are, well, beautiful.

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