Customer Privacy on the Web

For four years now, the Federal Trade Commission (FTC) hasaccommodated the Internet industry’s request that it, not thegovernment, regulate the collection and use of consumerinformation. In late May, the FTC decided that enough wasenough.

Basing its decision on federal report findings that only 20percent of a random sample of websites adhered to the fourtenets of what the FTC considers fair privacypractice–notice, choice, access and security–theagency recommended legislation that would make privacy practicesmandatory and enforceable.

The Internet industry, predictably, is up in arms. Lobbyinggroups like the Online Privacy Alliance and the InformationTechnology Association of America insist that such regulationsare unwarranted and will do little more than open the floodgateson government regulation, which, in turn, will slow a boomingeconomy. But if federal regulation is so abhorrent to theInternet industry, why won’t e-commerce companies do what ittakes to keep the government off their backs?

If e-commerce companies were to implement full-scale privacypractices, not only would they forestall federal involvement,they would actually encourage more online commerce. A recentArthur Andersen survey found that 94 percent of 365 Internetusers expressed some level of concern for their privacy, and a1999 survey by Forrester Research found that 90 percent ofconsumers want to control how their personal information iscollected and used. In response to a Sound Off column postedlast year that asked “Do your customers really care aboutprivacy?” nearly all readers argued vociferously that theircustomers do.

At a time when even well-financed retail e-commerce sites aredropping like flies, companies can’t afford to play fast andloose with customer desires or with the legislative leanings ofthe FTC.

So why are e-commerce companies so unwilling to offer theircustomers privacy protections? Are the financial benefits ofunfettered collection of personal data so great? Apparentlynot.

A May article in The New York Times argued that while websitesare certainly collecting data about their customers, they aren’tmaking particularly good use of that data. “Many companies aretrying to peer back through the glowing screens at Internetusers,” reporter Saul Hansell wrote, “but so far no one has beenable to make a big business out of being Big Brother.” If theunbridled collection of personal data isn’t doing much for thebottom line but is discouraging consumer activity and invitinggovernment involvement, why won’t websites get serious aboutcustomer privacy?