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Today, the two most important words in business are leverage and trust. The issue of the day is how to reconcile the two ideas when we are doing business on the Internet, particularly in the area of privacy policy.
We can’t ignore the fact that advertisers are willing to pay five to 10 times more for an ad that is delivered to a prescreened audience than to a mass of consumers selected without a filter. Companies will spend $4 billion this year for online advertising, according to the Internet Advertising Bureau (IAB), an expenditure that is already ahead of outdoor advertising because of its capacity to target customers. In other words, the industry driver is the leverage enabled by consumer information.
Shares in DoubleClick Inc. ceased trading temporarily last February because the company had disclosed that it was the subject of at least six lawsuits pertaining to its privacy policy. Overall, the concern was that the firm had intended to profile customers by linking information about a person’s Internet activity with detailed household information residing in databases that DoubleClick obtained when it acquired Abacus Computer Corp. This revelation was on top of a complaint the advocacy group Electronic Privacy Information Center (EPIC) had previously filed with the Federal Trade Commission (FTC). According to David Sobel, the center’s general counsel, “DoubleClick plans to combine anonymous information with personally identifiable information,” he says. “The company is attempting to change the rules.” In short, the issue is trust.
So here is the bottom line: leveraging information on the Internet is an essential component of e-commerce. At the same time, Americans have understood that privacy is a right protected by law, as well as by cultural standards. Now we have to figure out how to do something that enables, perhaps even promotes, the first without sacrificing the second. What’s likely to happen?
There are other ad networks, as well as vendors, out there that will increasingly share the spotlight with DoubleClick. According to Sobel, there may be some other Web sites that are more problematic. More than ever, people will scurry to see how the debate about the “rules,” let alone the rules themselves, will affect investment fortunes: Does the data suggest that my dot-com is fast becoming, as a function of public policy or threat of regulation, a “dot-bomb”?
The plot will thicken. The scope of privacy policy virtually assures that numerous government players will have an interest in whether we let the commercial sector monitor itself or subject it to more regulatory solutions. Every business sector has its share of related congressional committees and regulatory agencies. The FTC, its advisory group for online access and security, and the latter’s annual review of “acceptable” privacy policies for online businesses are also actors in the same drama.
In an election year, you can bet there will be no shortage of legislative proposals. There are opt-in bills, such as the separate proposals from Senator Torricelli, D-N.J., regarding the use of cookies and Congressman Ed Markey’s, D-Mass., “The Electronic Privacy Bill of Rights Act.” There are also opt-out bills, such as a proposal from Senators Conrad Burns, R-Mont., and Ron Wyden, D-Ore. As a backdrop, keep in mind that in 1999 nearly one in every 20 bills submitted to state legislatures dealt with privacy issues, according to James Lucier and Charles Gabriel of Prudential Securities. The consistent theme in all these activities focuses on how we balance the value of customer data with ideas about how we ensure protections for privacy.
A broader view, of course, also includes the international aspect; the European Union’s model is far more stringent than what we have today and an accommodation will be necessary to avoid impeding transborder trade. In the end, however, any solution, domestic or global, will have to recognize that, even in the New Economy, acceptable business practices ultimately reflect values that have meaning beyond commercial success.
Nicholas Imparato (imparato@hoover.stanford.edu) is a professor of management at the University of San Francisco, the editor of Public Policy and the Internet (Hoover Institution Press, 2000) and co-founder and director of PrimeWave Solutions.
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