March 12, 2012

Washington Prepares Data-Privacy Offensive, Web Companies Prepare Their Defense

With the political clobbering of the SOPA-PIPA anti-piracy legislation still visible in their rearview mirrors, a handful of American Internet giants are turning their attention towards a new political threat: federally mandated privacy policies. Yet with a tepid public looking on rather joining the ranks of online activists, tech companies may find that their attempts to derail personal-data collection legislation to be an entirely different ballgame.

Silicon Valley blue-chips like Apple, Facebook and Google have already begun lobbying D.C. politicians and bureaucrats to reconsider various circulating legislative proposals that would offer Web surfers a “do not track” option in their browser, making it impossible — or at least illegal — for their personal browsing history to be used for tailored advertisements.

Similar bills would allow Internet users to edit their dossiers of personal information, including their browsing histories which have become the key ingredient in increasingly sophisticated advertisement strategies.

While the exponential growth in advertising revenue seen in the last decade has been the rocket fuel propelling firms like Facebook and Google towards astronomical earnings, there has been a growing cacophony of criticism directed at the practices by which they procure and peddle their users´ personal information.

Amidst efforts to strike a balance in the discreet use of personal browsing information that´s both agreeable to users and profitable, the providers of various Web services have increasingly found themselves in the crosshairs of federal regulators.

In light of what the Federal Trade Commission views as a string of dubious and deceptive privacy practices in recent years, the federal regulatory body is expected to announce a number of new privacy recommendations for legislators this week.

Given the average congressman´s penchant for enacting new laws anywhere and everywhere they can, Internet service providers like Facebook and Google have been compelled to once again jump into the political fray in an attempt to prevent lawmakers from inadvertently damming up their channels of revenue.

Yet while the intrusive nature of SOPA-PIPA galvanized a natural and almost instantaneous coalition between Internet companies and average-joe Internet users under the banner of ℠Internet freedom´, the battle against Web privacy legislation will no doubt prove to be a much thornier affair for Silicon Valley PR reps.

As various federal and independent privacy advocates become more vocal in arguing that Web users have a ℠right´ to manage the use of their personal data in services that they don´t pay for, companies like Google and Facebook find themselves stuck with a hefty burden proof. And just what are they supposed to prove? Primarily, they need to convince the public that the use of personal data for targeted Web marketing doesn´t just allow them to stuff their corporate coffers but that it also benefits the average Internet user.

Firing the first retaliatory salvo, Google recently launched its “Good to Know” ad campaign which, in addition to promoting general Internet safety and responsibility, also makes the case that the quality of the company´s services depends on its ability to collect and use personal data.

At the heart of the matter remains the issue of how Web companies allow third-party advertisers to use personal data.

In current practices, internet data collection essentially lets online retailers get a glimpse into the anonymous Web user´s personal profile, including age, gender and browsing history. This, in turn, allows companies to direct advertisements at you for products and services that you might actually be interested in buying. Advertisers see better returns for their investments, Google its colleagues  make more money, and you get a constantly improving product at the cost of having to look at advertisements tailor-fitted to your profile.

Are you a 23-year old female nature enthusiast? Then maybe you´ll see an ad for discounted hiking boots in the margin of your screen instead of one for Viagra. Are you an elderly man scouring Web M.D. for a cure for IBS? Then perhaps you´ll see an ad to get dicycloverine (another little blue pill with a very different function) shipped to your front door instead of an ad inviting you to meet coed cuties in your area.

Google has come under particular public scrutiny from D.C. since it unveiled its revised privacy policy on February 24. In effect since March 1, the new guidelines allow the company to gather users´ browsing information from any of its over 60 services,  including Google+, Gmail or YouTube, into a single personalized dossier.

According to Google, everyone stands to profit from an all-around streamlined, more personalized Internet experience.

And it isn´t just the Web companies themselves making this argument.
Daniel Castro, a senior analyst for the non-profit, non-partisan think tank Information Technology and Innovation Foundation, says that the commercial use of personal information is what´s driving the explosive growth and dynamism of the Internet.

“When we talk about how the Internet will improve and grow for consumers, that´s coming from online behavioral advertising,” Castro recently told Reuters.

He warned, however, that strict regulation aimed at hampering the exchange of user information would likely cut off at least a part of the advertising revenue that´s fueling the ongoing Internet revolution.
Two economists have had a chance to examine this argument in vivo, so to speak.

In 2010, economists Catherine Tucker of MIT and Avi Goldfarb of the University of Toronto, published a study that examined the economic effects of Internet privacy regulations in a host of European countries which have already instituted rigid data-collection rules similar to those now being tossed around in Washington.

The results pointed to an immediate 65 percent decrease in the effectiveness of Internet advertisements as a result of the legislation. For companies relying on advertisements as a key source of revenue, this spelled a precipitous loss of revenue.

As Castro points out, if that loss in ad effectiveness corresponds to a parity decrease in revenue, companies like Google will find themselves in a world of hurt.

According to Reuters, Google´s financial statements show that roughly 96 percent of its $37.9 billion in revenue comes from advertising. And with Facebook´s intensely hyped initial public offering just around the corner, the company recently opened its books, revealing that 85 percent of its $3.71 billion came from advertising.

And while Apple derives significant revenue from the sale of its chic physical gadgetry, its wildly popular iPhones and iPads also depend on interconnected products and services that require the exchange of its customers´ information.

Thus, tech companies have good cause to be worried about the upcoming FTC ℠recommendations´.

Despite the short-lived encouragement that came in the form of the Obama administration´s so-called “privacy bill of rights” which centered on voluntary privacy agreements between consumers and companies, current FTC Chairman Jon Leibowits recently made the foreboding comment that he considered Google´s new privacy policy a “somewhat brutal choice” for Internet users.

While FTC´s recommendations are expected to include of various strategies for tackling the issue, many politicians Capitol Hill are not sitting on their hands in anticipation.

Senators and former presidential hopefuls John Kerry and John McCain are already circulating a bill that would mandate various revisions on how personal information is identified and used in targeted advertisements.
In reference to the bill, Kerry recently stated that American Internet companies need to get in line with European regulations for their own good, insisting that tighter privacy policies will actually provide a boon to the industry.

“Hell, establishing minimum privacy protections in law can help build consumer trust in the marketplace and in turn increase economic activity,” he said.

Most tech companies beg to differ, however, insisting that such regulations will only reduce revenue, forcing them to lay off increasing numbers of employees and plunging the economy further deeper into its present morass.

As it seems inevitable that the issue of privacy will move increasingly to the fore of public debate in the coming weeks and months, Web companies are aware that there´s a lot riding on the public´s still inchoate perception of personal data privacy.

Yet despite the fact that data privacy is an inherently more delicate issue than ℠web freedom´, there´s good reason to suspect that many average Americans may side with the tech companies over Washington.
After all, if there have been two undeniably clear trends in America in recent years, it´s that people love their Internet technology and loathe their politicians.

And because most of the current ruckus over Web privacy seems to be emanating from Washington rather than Main Street, it´s entirely feasible that Americans will refuse to take sides against the beloved friendly giants of the Silicon Valley.

As Linda Woolley, executive VP of government affairs at the Direct Marketing Association, recently observed, the average Web user just doesn´t appear to be that concerned about the current state of data privacy.

“From where I sit, I do not see hordes of Americans running to Capitol Hill saying we need to do something about this.”

Perhaps the average Web users simply needs to be reminded of the unspoken bargain they made with Internet companies: ℠We´ll provide you free of charge with a valuable tool for doing what you love to do, and in exchange we get to keep tabs on how you´re using our product and let other companies place ads on the periphery of your screen.

And perhaps concerns about privacy of information need to be redirected.
If readers will excuse a moment of editorial candor, this writer would like to point out that he´s considerably more concerned about what federal agencies can do with his personal information under the Patriot and National Defense Authorization Acts than about Google letting eHarmony know that I´m a single, 30-year-old male living in...

After all, Google employees don´t pack heat and they certainly can´t touch your Fifth-, Sixth- or Seventh-Amendment rights.


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