ANALYSIS: Dot-coms grapple with the consumer privacy issue - Collecting user data online can cause even well-established players to lose sleep - just ask Toysmart and RealNetworks. Joe McKee reports

Every industry has its PR nightmares. For online companies, where collecting customer data means big-time ad dollars, it’s the issue of privacy that goes bump in the night.

Every industry has its PR nightmares. For online companies, where collecting customer data means big-time ad dollars, it’s the issue of privacy that goes bump in the night.

Every industry has its PR nightmares. For online companies, where

collecting customer data means big-time ad dollars, it’s the issue of

privacy that goes bump in the night.

New laws and aggressive campaigns by privacy advocates are forcing

e-tailers and service providers to take a hard look at the data they

collect on users - and how they collect it.

For example, RealNetworks drew fire last fall from a pair of

class-action lawsuits representing 13 million consumers who downloaded

the RealJukebox music software. One suit seeks dollars 500 million in

damages, claiming the software tracked users’ music preferences -

including the CDs they listened to on their computer - and secretly

reported this information back to RealNetworks.

Called ’E.T.s,’ because they ’phone home’ data on users, such software

add-ons have been around for years, but now they’re becoming media cover

stories (see the July issue of Time-Digital). While hundreds of

shareware programs such as PKzip and Free Solitaire contain similar

E.T.s, and despite the fact that RealNetworks quickly deactivating the

data-tracking feature, the lawsuits - the largest yet in scope - have

become a litmus test for future privacy laws.

A privacy lesson of a different kind was learned by this

summer when it became the first company charged with violating the new

Children’s Online Privacy Protection Act (COPPA). In an attempt to raise

capital, the now-bankrupt e-tailer put up for auction its marketing

database, which included information on children under the age of 13 -

something strictly outlawed by COPPA. In addition, Toysmart’s Web site

stated data would never be disclosed, resulting in a separate charge of

deceptive advertising.

The data dilemma

’Customer data collected under a privacy agreement should not be

auctioned off to the highest bidder,’ says Jodie Bernstein, director of

the Federal Trade Commission’s Bureau of Consumer Protection, the agency

filing the charges. Toysmart agreed to delete records on users under the

age of 13 and give adult customers the choice to have their data

removed, a practice called ’opting-out.’

Once underestimated, privacy advocates are now well organized and media

savvy, and have their sights set on big targets. Richard Smith, noted

for tracking down the Melissa virus, is credited with cracking the

RealJukebox case and recently filed a similar E.T. complaint against

Amazon subsidiary Alexa and its zBubbles online shopping software.

Another credible advocate is Marc Rotenberg, executive director of the

Electronic Privacy Information Center (EPIC). Rotenberg has testified

numerous times before the Senate Commerce Committee, and his summer

media campaign was instrumental in halting plans of online advertiser

DoubleClick to link user profiles with names and addresses from recently

acquired Abacus Direct, a direct mail company.

’(DoubleClick) is now the subject of scrutiny by the FTC and state

attorneys general, including Michigan and New York,’ announced Rotenberg

in a June press release.

The watchdogs’ tactics of turning privacy issues into headlines seems to

be working. PC World now dedicates an annual issue to online privacy,

and stories involving ethically borderline practices by Internet

companies have been featured in Time, Newsweek and US News & World


Upside potential

Despite the mostly negative press coverage of privacy, some e-businesses

have masterfully created a privacy-sensitive image using consumer

education and up-front data collection notices.

’Businesses should inform consumers in a clear, conspicuous manner how

they treat personal information and give choices on how that information

is used,’ warns Senator John McCain (R-AZ), chairman of the Commerce


Taking heed, the Big Three - AOL, Yahoo! and Microsoft - all advertise

clear and protective privacy policies.

AOL, facing competition from free Internet services, used recent print

and broadcast campaigns to promote its commitment to user privacy. AOL’s

privacy pages have links to ad partners with instructions on


Yahoo!’s privacy Web page does much the same and includes an education

section with (surprisingly) a link to the Federal Trade Commission. ’We

at Yahoo! are committed to ensuring users are empowered to make informed

choices about protecting their privacy,’ said co-founder Jerry Yang last

year when the company unveiled its program.

Even Microsoft, once vilified by accusations of inventing E.T. programs

five years ago, is changing its privacy image. ’The debate over privacy

has been settled at Microsoft,’ says Richard Purcell, the company’s

director of corporate privacy. ’There is no debate. Empowering our

customers is a solid business decision and a fundamental value to

creating customer loyalty.’

Three years ago, in a bold yet unheralded move, Purcell and his team at implemented the Profile Center, where users can view the

data has collected about them and make specific

corrections or deletions.

Going beyond just policy, the company has also integrated privacy into

its software line, announcing two new products: a robust privacy manager

upgrade for Internet Explorer users and the Privacy Wizard software

already used by over 17,000 Web sites to generate customized privacy


While advocates, legislators and advertisers try to predict the complex

future of online privacy, today’s bottom-line equation is fairly


Those Internet companies working to turn the ’privacy problem’ into a

marketing asset will find success. Dot-coms ignoring the legal dangers

and public perception importance of online privacy simply won’t.


In a Business Week/Harris poll published in March 2000, 92% of Net users

expressed discomfort about Web sites sharing personal information with

other sites

The newly amended Computer Fraud and Abuse Act allows consumers to sue

for financial redress companies that use deceptive practices According

to a July 2000 cover story in Time-Digital, an estimated 22 million

users are believed to have unknowingly downloaded E.T.-type programs The

words ’right to privacy’ do not appear anywhere in the Constitution. The

referred-to 4th Amendment right comes from a collection of Supreme Court

rulings that apply to the search-and-seizure actions of the government

against US citizens.

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