Milton Pedraza: 'Top tier luxury brands and celebrities will create their own digital platforms and control their destinies directly.'

Luxury Institute's CEO talks about a range of issues affecting the luxury sector, including the dangers of ChatGPT and social media platforms
Milton Pedraza Headshot

Milton Pedraza

Milton Pedraza is the founder and CEO of the Luxury Institute, a research, training, and business and personal data technology solutions partner for luxury brands.

You've had a long career in the luxury sector. Can you tell us how you came to work in this space? How did founding the Luxury Institute come into your plans?

“In 2001, I was hired by Cendant, a major conglomerate, to create a luxury hospitality division via acquisitions. After 9/11 they said luxury was dead. By then, I was smitten with the industry because luxury is the absolute best of something. Having previously worked for top brands in the consumer goods industry such as Pepsi and Colgate, in 2003 I saw an opportunity to bring high-quality consumer research to the product-centric luxury industry to reflect the voice of the high-net-worth (HNW) client. In 2005, we added consulting to help new and existing luxury brands define and execute effective strategies and experiences. After 2008, we saw a dire need to take the industry from a mindset of transactions into building genuine client relationships, and added education for front-line managers and associates on emotional intelligence. Twenty years later, we have served over 1,100 brands, and we continue to serve the best interests of the world’s top luxury brands across dozens of luxury goods and services categories.”

Privacy is a hot button issue in luxury, especially now with the rise of ChatGPT and the prevalence of social media platforms like Facebook, Instagram, TikTok and the like. You've said that in a world where we are becoming digital, all our data is at risk. Can you explain what you mean?

“Since the invention of social media and online search, luxury brands, celebrities and individuals have given up their data – a digital asset they are unaware they own – for access to the platforms. Brands also collect data, buy third-party data that may not be permissioned, and/or provide data to third parties without clear legal consent. This has created new liability risks for brands and their customers as privacy laws take effect. Cybersecurity risks are also a major issue for brands and their customers. Luxury brands that serve the HNW and ultra-high-net-worth (UHNW) clients must begin to create direct, privacy and security protected, fair value data/insights-sharing relationships with these sophisticated clients.”

Are there other things that concern you about ChatGPT in particular?

“As if social media and search were not enough of a challenge to our privacy, freedoms and digital property rights, along comes ChatGPT, or Generative AI (GAI). GAI is indiscriminately scraping and mining the entire internet without regard for the legal ownership of original content, copyrighted material and the intellectual property rights of all original creators including brands, artists, celebrities and individuals. That’s not ok. When electricity was invented, no one was allowed to steal the fuel that powered it. The same applies to data. GAI platforms depend on training data to be effective. They should be in an ethical dialogue with all key creators to develop contractual agreements on how they will gain legal, by-consent-only, ethical and fair value use and compensation of the creator-owned training data.”

Social media platforms can only display personal content online because of licenses that the copyright holder grants to them. If you want to be on social media, isn’t that a fair exchange?

“On social media you license your data through terms of service in exchange for the services provided by the platform. The data is used to serve ads. Previously, this was seen as a fair exchange. However, given new privacy laws in Europe and several US states, the fact that other identifying data is sourced and used without consent, some of that data is sold or provided to third parties without consent, and even how the data is used to serve ads, are becoming issues. As to whether creators and consumers are getting fair value for their data is now also a point of contention.”

According to various reports, almost 70% of the world’s population uses social media. Given this number of users, is content licensing really practical?

“There is a growing community of researchers, advocates, HNW and UHNW investors, and entrepreneurs that believe demographic, identifying, medical, financial, consumption, location and other essential data of individuals should be controlled by individuals, stored in their mobile device in a secure personal data container, backed up to the cloud and all with legal representation. The AI then works to generate all kinds of insights inside the device. This creates data control, privacy and security. Then, platforms, doctors, banks, brands and other interested parties can license or access the essential insights required to serve the customer versus collecting raw data on insecure servers. It also allows providers to personalise for the customer, often in real time, for fair value such as rewards and experiences. This flipping of the current AdTech model is technologically possible today and governments and ethical companies are starting to embrace the logic, security and lower costs of this model. Citizen Me is just one company I am invested in that already has clients. And there will be others.”

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Tell us about your Creator Empowerment Technology.

“My fellow investors and entrepreneurs and I are working on what we call Creator Empowerment Technology. These are tech tools and services that empower brands, celebrities and individuals to do three critical things. First, take full control of their digital and physical identity, via encryption tech, so they cannot be impersonated or defrauded. Second, take full control of all their data, including the data they generate online, so they can do whatever they want with it, including delete it, donate it or license it. Third, take control of their digital connections via encryption keys, such that should a platform decide to shut them out, they will not lose their digital connections and relationships.”

Imagine a world with ubiquitous Creator Empowerment Technology. What do social media platforms look like in that world?

“We believe that while the current digital platforms will continue to operate, new private platforms that are co-owned and controlled by the top creators such as top tier luxury brands and A-list celebrities will emerge. Just as the top tier luxury brands now control their physical distribution channels to levels of 90% to 100%, we believe that top tier luxury brands and celebrities will create their own collective interaction digital platforms and control their own digital destinies directly. They will respect the privacy and digital rights of their customers and fans and cut out the digital middlemen. As in the physical world, luxury brands and celebrities will use some third-party distribution. While second-tier brands and celebrities will still have to use the current platforms, the elite luxury brands and celebrities who have the most customer and fan interactions will be direct and become far more profitable.”

Other than the IP/privacy concerns you've talked about, what are some of the issues keeping those in high-net worth and ultra-high-net worth sectors up at night?

“HNW and UHNW customers are the most educated, sophisticated and discerning. Their needs and desires are continuously evolving. They demand the best and are willing to pay for it. Many luxury brands continue to be product-centric instead of customer-centric. And Covid really had a negative impact on luxury brand research, staffing and training. Today many brands are back to square one on understanding customer needs. They are struggling with staff shortages created during Covid and have neglected the education and development of emotional intelligence skills and mastery associates need to demonstrate expertise, empathy, trustworthiness and generosity with human creativity. HNW and UHNW tell us that understanding their emerging needs and delivering extraordinary human experiences are the two major issues that luxury brands need to address now.”

Pedraza can be reached at [email protected]

Read the GLP Law Over Borders Luxury comparative law guide, which features contributions from law firms including Studio Legale Jacobacci & Associati, Phillips Nizer, Santarelli, Taylor Wessing, Kim & Chang and Gunnercooke.

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