Privacy vs. psychology.

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From: Carey Lening (carey@tstonramp.com)
Date: Wed Sep 06 2000 - 16:19:07 PDT


[There's a section towards the end of the article that says :

"..no matter what consumers say about their values, people generally won't
give up convenience to protect that privacy. "Ask people 'Are you concerned
about the environment?' and they'll say 'Yes.' 'Are you willing to give up
your gas-guzzling SUV for an electric car?' 'No.'"

Its so unfortunately true that it hurts. Capitalizing on this by providing
an appeasing reason to give up your privacy ( in this case so a database
can remember the same information you put in an organizer, sans the
advertisements) is psychological dupe. While they're not hiding the fact
that they get your information, or what they're using it for (ala
Doubleclick), they've played on a technique that does assure them of
plenty of willing subjects: Convenience over anything else. NOne of this
is new, but I wonder just how far it will go? This kind of method leads me
to dread the idea that government will use this convenience argument
to say, house your data on their servers -- just so you know its safe (or
Microsoft for that matter) or even worse, as envisioned by the Clinton
Administration, keeping a copy of your cryptographic key in case you forget
(1). This sure doesn't lift my opinions much of the state of humanity and
its endless spin towards the simple cozy life of ignorance and
stupidity. Ugh. --BB]

(1) http://www.iitf.doc.gov/eleccomm/ecomm.htm

'Opting In': A Privacy Paradox

By John Schwartz
Washington Post Staff Writer
Monday, September 4, 2000; Page H01

Some big computer out there knows all about Joan Schram. Its massive memory
has stored the birth dates of family members and friends, the fact that she
drives a Ford Explorer, and the names and birth dates of her American
shorthair cat and rare Brazilian fila dog.

And she's thrilled about it.

Schram gave out the information herself, answering screen after screen of
personal questions from LifeMinders Inc., a Herndon-based company that
collects such data from consumers and e-mails them information in return
reminders of important dates, tips on when it's time to treat the cat for
ticks, and news and advertising targeted to their interests.

But like many Americans, the Kennedy Center employee also says she's
uncomfortable with the thought that when she goes online, other Internet
companies could be monitoring her wanderings and gathering the same kind of
personal information that she freely gave over to LifeMinders. If somebody
else knew about her Explorer, she says, "I'd be a little disconcerted."

It's one of the more puzzling conundrums of online life. While companies
that capitalize on the Internet's powerful potential to invade privacy are
denounced as villains of the information age, millions of people type out
highly personal data and send it off to Web sites they've barely heard of,
with no strong legal protection against misuse of the information.

The paradox helps illustrate the complexity of the debate over privacy, and
the difficulties facing regulators and policymakers who are trying to
promote security for Web users without braking the economic growth of the
new medium.

Personal data is pure gold for advertisers eager to target their pitches
efficiently and effectively, and the Internet has opened huge opportunities
for marketers at the same time that it has created new privacy risks for
consumers.

LifeMinders is the leader in the sector it calls online direct marketing,
having quietly signed up 18 million members since the company was founded
in June 1996. That gives it one of the largest online consumer databases.

Consumer databases play a key role in the debate among policymakers,
regulators and privacy activists that has led to plans for tougher laws
protecting online privacy. DoubleClick Inc., for example, a company that
tracks Web surfers' comings and goings online in order to learn enough
about them to serve up targeted advertising, has come under the scrutiny of
the Federal Trade Commission and several states. The controversy led
DoubleClick to postpone plans to merge its online data with a vast
warehouse of information collected by an acquired company, Abacus Direct,
on catalogue shopping habits.

DoubleClick, 24/7 Inc. and similar companies gather data automatically when
a user visits a Web site, almost always without notifying the person or
obtaining consent. The companies argue that they are not violating privacy
because most of the information is collected anonymously that is, they
say they don't keep individual records with personally identifiable data
without getting permission first. Still, users who want to "opt out" of the
system must find the fine print on the Web site in order to learn how to
remove themselves.

Companies such as LifeMinders and New York-based NetCreations Inc. a
similar firm that has signed up 9 million members have avoided a privacy
backlash because members "opt in." The result: LifeMinders' hundreds of
Dell servers are filled with tidbits about millions of lives. "You give us
information about yourself and we give you a great product in return," said
the chief executive, Stephen R. Chapin Jr.

The company reassures members that it respects their privacy; its Web site
states, "LifeMinders.com does not share member information with third
parties without permission." But such promises are not always immutable. In
July, the FTC filed suit to block the sale of customer lists of Toysmart
Inc., a bankrupt e-retailer that also had promised never to share its data
with third parties.

For its part, DoubleClick says that it is in fact offering consumers plenty
of power to say no to its practices. "DoubleClick is committed to giving
consumers real notice and choice," said Josh Isay, the company's Washington
representative. "We believe that the appropriate standard for marketing
purposes is an opt-out."

The advantages that flow from the kind of targeted ads DoubleClick serves
up to Web site visitors, he said, outweigh the privacy concerns. "Consumers
and Web sites benefit from customized ads that contain information about
relevant goods and services; we believe that an opt-out standard allows for
this, will keep the Internet free and will empower consumers to choose
whether or not they wish to participate," Isay said.

Volunteers, Step Forward

The immense voluntary audience of LifeMinders is a juicy target for
advertisers, who pay the company to have their products and services
pitched as part of the 50 million informational, personalized e-mails that
LifeMinders sends out every week.

Before founding LifeMinders, chief executive Chapin ran mass mailings for
credit-card companies, where he says he picked up ideas about collecting
information about people gently. "If you want to be reminded about
information about your pet, you have to tell us his breed," Chapin said.
"That makes sense to consumers."

Chapin and other veterans of the $176 billion direct-marketing industry who
came with him to LifeMinders say they learned that while everyone gripes
about junk mail, people like getting information they can use.
Personalization is the difference between a missive being useful or being
junk, said Dave Mahoney, the company's chief operating officer.

"As soon as we know how many objects you have in the family category as
soon as we know that you have a female child who's 5 years old we can
target that information back to you very specifically," with tips on child
raising and age-appropriate books and gifts, Mahoney said.

Jack Biddle, a venture capitalist with Novak Biddle, which has invested
heavily in and profited mightily by LifeMinders, points out that by
using a time-tested business model of direct mail, the company has avoided
many of the pitfalls that have been killing off dot-coms.

LifeMinders has signed up some big-name advertisers, including Pfizer Inc.,
BMG Music and Home Depot Inc. The company has also in recent months built
up an operation that allows other companies to use its technology to send
out personalized e-mail: International Business Machines Corp. and the
Sydney Olympics have signed contracts with the company to send out as many
as 30 million personalized Olympics updates daily during the coming games.
The company is also building its capability to send out personalized
messages to those tiny screens popping up on newer cellular phones.

LifeMinders has yet to turn a profit, as the company mounts a full-court
press to build a huge base of members. The company spends relatively little
to attract each new customer about $3.50 apiece. Yet LifeMinders says
advertising income from each customer is about $1.25 apiece every three
months, which means that the company begins making money on customers in
less than a year, compared with about three years for many credit-card
companies and in the case of many Internet companies perhaps never.

The company is now spending less on customer acquisition in order to hasten
the move to profitability, said LifeMinders President Allison Abraham;
losses shrank from $17 million in the first quarter of the fiscal year to
$12 million in the current quarter, and the company estimates "we're about
two quarters away" from profitability, Abraham said.

The losses at LifeMinders so far, Biddle said, "weren't dot-com kind of
losses where you spend a bunch of money to get a customer, and where the
customer is worth a lot less than it costs to get him."

Chapin attributes the company's growth to the fundamental idea behind the
service, which he compares to the old-fashioned corner shopkeeper: "You
used to go in and he'd say, 'I know you want to buy rice today, because you
haven't bought it in two weeks.'" An insight like that from someone you
know and trust is comforting, Chapin suggests while the same statement
from a stranger is creepy.

But for most people, LifeMinders is hardly the corner shopkeeper, or a
long-trusted brand name with a track record. So why would Schram and so
many others gladly offer up details of their lives?

Schram says she has given over information to LifeMinders because she feels
that she has a relationship with the company. Would she give her name,
address and dog's birthday to someone who walked up to her in the mall,
clipboard in hand? Would she divulge it in an online conversation with a
stranger? "No," she said. "Probably not."

Austin Hill thinks he has one possible explanation. Many Internet users
feel an intimacy with their machines that gives them a comfort level in the
seeming privacy of their living room and in their pajamas that they would
never feel on the street, said Hill, who is chief executive of Zero
Knowledge Systems Inc., a Montreal company that provides privacy-enhancing
tools for Web surfers.

Yet anonymity is actually far harder to achieve in the online world than in
the real one, said Patricia Wallace, executive director of the Center for
Knowledge and Information Management at the University of Maryland. "In the
store, you can choose to be anonymous," said Wallace, author of "Psychology
of the Internet." "You can carry a lot of cash, refuse to respond when
you're asked for your address and Zip code. Online you must use a credit
card, and you will reveal a great deal of information about yourself."

Based on public opinion polls alone, a business such as LifeMinders
wouldn't seem to have a bright future. A recent report by market research
firm Forrester Research Inc. indicated that two-thirds of online shoppers
feel insecure about exchanging personal information over the Internet. A
Harris survey found that 92 percent of consumers are concerned (and 67
percent are "very concerned") about the misuse of their personal
information online.

But Hill argues that no matter what consumers say about their values,
people generally won't give up convenience to protect that privacy. "Ask
people 'Are you concerned about the environment?' and they'll say 'Yes.'
'Are you willing to give up your gas-guzzling SUV for an electric car?' 'No.'"

Representatives of many Internet companies will quietly (after ensuring
that they will not be named) suggest that privacy activists are
out-shouting the majority of Americans, who don't actually worry very much
about protecting their personal information.

Some consumers would agree. "It's just too late in our world to be too
terribly concerned about how your name is used," says federal employee John
Morris, who initially signed up with LifeMinders because "I'm kind of
rotten with remembering birthday and anniversaries and stuff" but quickly
came to appreciate the flow of information about interesting Web sites to
visit. "If I feel like trying to put my fingers in the holes in the dike,
well, I don't have enough fingers."

The Government Steps In

Even as some Internet users become more accustomed to sharing personal
information online, government regulators are moving to strengthen
protections against misuse of the data. The Federal Trade Commission, which
has taken the lead role in online privacy since the mid-1990s, had long
leaned toward allowing self-regulation of the online world. There have been
exceptions: The commission regulates online privacy protections for
youngsters under the age of 13 under the Children's Online Privacy
Protection Act of 1998, and it will regulate the online privacy of
financial-services customers under the new Gramm-Leach-Bliley Act.

But now the FTC is asking Congress for greater authority to generally
regulate privacy online, a move greeted with antagonism this summer by the
Republican leadership in Congress and even with some skepticism from the
rest of the Clinton administration.

FTC head Robert Pitofsky said he hopes to see a system develop that will
marry today's efforts at self-regulation with an appeals process that would
defer to a regulatory body. The FTC plan focuses on consumers' knowledge
and consent to having information collected as the cornerstone principles
of what it calls "fair information practices," which include clear notice
of a site's privacy policies, a measure of consent over how the information
will be used, the ability to correct misinformation about a consumer, and
the kind of security measures that will ensure that a consumer's
information is safe from computer intrusion and theft.

While he notes that the FTC's policies are guided by surveys and research,
Pitofsky still admits to personal irritation at seeing personal data
gathered online "with no notice that this information is being collected
then accumulating it and perhaps selling it to others," he said. "It's a
little like your television set collecting information about you as you
watch programs and ads, and then selling it."

Lawrence Ponemon, a PricewaterhouseCoopers partner who consults on ethical
and privacy issues, said that consumers should be concerned about the uses
their information is put to: "I don't think people fully understand the
consequences." Companies, he said, need to see the data they collect not as
their private property but as assets on loan from the consumer like a
bank account that creates a fiduciary obligation.

One change is on the way. An international standards group called the World
Wide Web Consortium is readying Platform for Privacy Preferences (P3P), a
long-awaited system that incorporates Internet surfers' privacy
requirements automatically into the Web browser so that Net surfers don't
have to read long, confusing privacy policies on every Web site. The
industry-led initiative was formed to build privacy protections into the
browsers that people use to cruise the Web. The P3P initiative calls for
adding cues to Web sites that describe what the privacy policies are in a
way that the browser can present the information in the course of surfing
that is, a warning will pop on-screen if the site doesn't meet the minimum
privacy-protection standards that the user demands.

Once the system is in place, its advocates suggest, Web sites will strive
to ensure that their policies qualify for the highest possible privacy
rating represented in current versions of the system as a green light.
Once those policies are in place, however, the FTC could move to compel
compliance with them, as it did in the Toysmart case.

Mary Culnan, a professor at Georgetown University's business school and a
consultant to the government on privacy issues, said online protections
could end up stronger than those governing traditional direct mailers.

"In the off-line world," Culnan said, "every list is for sale or for rent."

2000 The Washington Post Company


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