Chapter 9

Privacy and Customer Feedback

Being good is good business.

—Anita Roddick

Getting customer information is easy. You can buy it from the government, from list brokers, from competitors even. But getting customer information from customers is not easy, as we’ve seen in the last two chapters. Yet it’s absolutely necessary, because the only real competitive advantage an enterprise can have derives from the information it gathers from a customer, which enables it to do something for him that no one else can. Competitors without a customer’s personal information are at a disadvantage. That is the one compelling reason an enterprise must interact with its customers and reward them for revealing their personal information. It is also the main reason why an enterprise should never misuse the information it owns about a customer or violate a customer’s trust—because a customer is the most valuable asset the firm has, and the ability to get a customer to share information depends so much on the comfort level a customer has with giving that information to an enterprise.

Interestingly, for the first time since we all became aware of privacy as an issue, enterprises and customers share a common interest: protecting and securing the customer’s information. At least that’s true of customers who are thinking about the implications of their far-flung data and of enterprises that are building their value through strategies designed to build the value of the customer base.

In this chapter, we first look at some general privacy issues and how they are being addressed. We next examine the distinct issues raised by data held and exchanged online.

Every day, millions of people provide personally identifiable information about themselves to data collection experts. As a result, an average U.S. consumer is buffeted by thousands of marketing messages every day1—far too many to hit any consumer’s consciousness. How many do you remember from yesterday? Consumers sometimes unknowingly divulge their personal data during commercial transactions, financial arrangements, and survey responses. And the Web has escalated the privacy debate to new heights. Never before has technology enabled companies to acquire information about customers so easily. Watchdog privacy advocates and government regulators are mobilizing against the threat to a consumer’s right to privacy.

Consider these points:

  • Privacy policies of individual companies vary tremendously, as does compliance with these policies (largely self-generated and self-enforced).
  • Privacy preferences vary tremendously among individuals and across nations and cultures.
  • Hundreds of new privacy laws have been introduced worldwide in the past 10 years.
  • Courts around the world are awarding significant damages to consumers and Internet users over claims of privacy violation.
  • New technologies that support data collection, Internet monitoring, online surveillance, data mining, automatic mailing, personal searching, phishing, identity spoofing, and identity theft (now a billion-dollar industry)2 are rolling out into the electronic marketplace every month.
  • Personalized, customized products and services over the Internet—most of which require users to provide more personal information than they have ever given to companies before—are growing.3

In the twenty-first century, we realize that customer data are among the most valuable assets an enterprise can have, because the personal information about a particular customer that no other enterprise has is a unique asset that can provide an insurmountable competitive advantage in dealing with that single customer. For a customer-based enterprise to be successful in this century, it needs to protect that information—to hold it sacred.

And yet, in the twenty-first century, we realize that customer data are among the most valuable assets an enterprise can have, because the personal information about a particular customer that no other enterprise has is a unique asset that can provide an insurmountable competitive advantage in dealing with that single customer. For a customer-based enterprise to be successful in this century, it needs to protect that information—to hold it sacred. Privacy and personalization are inextricably interwoven. Customers who feel like they could lose control over their own information are not likely to become willing participants in a dialogue. Privacy should not be taken lightly by the customer-based enterprise.

For the enterprise interested in increasing its share of each customer’s business, there has to be a balance between getting enough information from customers to help them do business with the firm while respecting their right to lead a private life. The dilemma for the customer-strategy firm is how to remain sensitive to privacy while improving the business to suit each customer’s individual needs. This is in stark contrast to a product-selling company, which likely views privacy simply as a roadblock on the road to profitability.

The privacy debate continues as the interactive and interconnected era matures. Despite the ongoing controversy over a person’s legal right to privacy, customers find it difficult to quantify the damage they incur when their privacy has been violated. It is difficult to place a monetary value on the abuse of personal information, unlike other crimes, such as a car theft. For that matter, what does it cost when someone’s credit card number is exposed to a third party who does not use it?

Our society subscribes to two antithetical beliefs simultaneously: that people should have the right to remain inconspicuous to others but also have the right to learn the identity of someone else when we need to. For instance, a consumer might want anonymity when shopping, especially online. But the same person might support a system that reveals the identity of computer hackers or those who plant e-viruses. To ponder further, our society requires the display of license plate numbers, for public revelation of each automobile owner. Should we also have “license plates” for Internet users so it would be easy to track them down when they commit an offense, such as identity theft or launching a virus maliciously?

Two events since the beginning of the century have shaped our opinion of privacy, at least in the Western world:

1. The terrorist attacks in the United States on September 11, 2001, called into question the wisdom of ironclad privacy protection and the anonymizing technologies available online.

2. The increased capabilities of social media and their surge in popularity, especially among younger consumers (see Chapter 8), have significantly increased the volume and detail of personal information many people make available online.

A 2008 study by the American Consumer Institute’s (ACI) Center for Citizen Research found that online users’ concern about privacy issues is continuing to rise: 74 percent were “very concerned” about identity theft, and 61 percent reported “great concern” about their privacy due to online tracking programs.4 In contrast, a Forrester study conducted that same year found that only 35 percent of 18- to 28-year-olds are concerned with sharing information online.5 Ironically, although most Americans do seem to think privacy is fairly important, a lot of U.S. popular culture has been inspired by snooping: So-called reality television programs, such as Survivor, Wife Swap, and Extreme Makeover: Home Edition, have enabled viewers to peer into the private lives of ordinary other people. It has become a cultural norm to be flies on the walls of a stranger’s personal conversations when his cell phone rings while riding a bus or a plane. Voyeurism seems to be more in vogue, so long as no one is snooping on me. But the increasing popularity and use of social media has led to what might also be an epidemic of exhibitionism (discussed later in this chapter), at least among the younger generation. It’s possible that kids who were born after 2000 will simply not get the idea of privacy, since they will have been raised in a world of increasing transparency.

Privacy concerns have long existed in traditional shopping methods, not just the Web. Walk into a supermarket or department store and the customer is often asked to hand over a loyalty card in exchange for a purchase coupon. But what if he buys something in a retail store, and simply uses a standard bank credit card? In such a case, the store has very little way of tracing the information about that shopping transaction and may have difficulty linking it to a particular customer, unless the customer is having the merchandise delivered. (It should be noted that the credit card company will have a complete record of that transactional information, for that customer, store to store.) Nordstrom Inc. has found a way to gather information from nearly all in-store purchases, regardless of payment type. Its store personnel ask customers for permission to affix a bar code to the back of a customer’s own (non-Nordstrom) credit card, giving the store the capability to track its customers’ purchases made with other credit cards.

Profiling of a customer’s personal data is standard protocol in the direct-mail industry and has been for nearly a century. Traditionally, this has meant that catalog retailers and credit card companies have collected names and addresses for their own use and have sold or rented those lists to other direct marketers. Phone a catalog merchant, and the buying process involves divulging an address and phone number. For that matter, call L.L. Bean or many other catalog companies, and the customer service representative might even be able to identify the customer before he states his name, thanks to the caller identification (ID) technology integrated into the company’s call center. Interactive voice response systems, when programmed with metadata detailing the kind of calls individual customers have made in the past, can ensure that the most valuable customers end up at the top of the queue to speak directly with a customer service representative.6

Remembering a customer and his logistical information makes it easier for him to order and also leads him to believe he is important to the enterprise. The Internet offers the greatest opportunity to date for gathering personal customer information, as long as a mutually valuable relationship between provider and consumer is honored. Over time, data collected about Web-site visitors empower companies with a keen ability to identify their most valuable customers and deploy relevant marketing campaigns—as long as the information customers enter is true, that is.7 But, in general, customers themselves are recognizing the convenience of being known by the Web sites they visit: A 2006 Ponemon Institute survey found only 8 percent of people “very frequently” delete cookies (down from 14 percent in 2004) and 24 percent “never” delete them. Further clarifying that convenience is outweighing past privacy concerns, 63 percent said marketers should understand their interest before advertising to them, and 55 percent said that Web ads that suit their needs improve or greatly improve their online experience.8

However, even questionable security is a deal breaker for most customers. Sixty-three percent of respondents to a National Cyber Security Alliance and Symantec poll did not complete a Web site purchase due to security concerns—with the majority of those choosing not to purchase “simply not sure” about whether the site was secure. As important as convenience may be, more than 75 percent of respondents said they would be just as likely to make a purchase from a Web site if it required additional steps to verify their identity.9 Clearly, customers want both maximum convenience and maximum (identity) security, creating a very precise tightrope for customer-centered businesses to walk.

Managing customer relationships in the interactive age requires enterprises to collect information about customers in a “virtuous cycle” in which they can deliver additional value to individual customers.

Enterprises gather information about their customers and create loyalty programs to build lasting relationships. But with increasingly complex product choices, many sophisticated customers enjoy comparing and contrasting products to find the best price and most efficient service—and want both the information and the privacy to make a decision on their own terms, without being pressured too soon to make a purchase. The goal, therefore, is for the enterprise to find out as much information about a customer and use it for that customer to make the buying experience more valuable to that customer in various ways. Managing customer relationships in the interactive age requires enterprises to collect information about customers in a “virtuous cycle” in which they can deliver additional value to individual customers. Once the customer begins receiving personalized attention and customized products, he is motivated to divulge more information about himself.

For instance, a recent Forrester report, which concluded that few consumers perceive a value exchange for sharing personal data, did find that some consumers surveyed are “willing” or “extremely willing” to share personal information in exchange for:

  • Receiving product samples—34 percent
  • Gaining entry in a sweepstakes or contest—22 percent
  • Receiving better products or services—20 percent
  • Receiving ads and offers relevant to their wants and needs—18 percent
  • Finding/meeting people with similar interests—9 percent10

Although the preponderance of evidence shows that consumers do like the customized offerings and other advantages companies can give them by tracking their data, it is essential to guarantee that the customized benefits provided will not jeopardize their privacy. Customers must know that the company will use that data in a limited way for services agreed on in advance. Without such trust, customization is not a benefit. Once earned, trust in an enterprise enhances customer loyalty. But enterprises need to address customer concerns about privacy, to offer guarantees, and stick to them. Those enterprises that gain the customer’s trust first often will have the first-mover advantage. (We talk more about privacy pledges later in this chapter.)

Some believe that a customer might be more trusting of an enterprise and would provide the personal information that can foster a mutually beneficial relationship if the enterprise simply first asks the customer his permission to do so. The relationship in which a customer has agreed to receive personalized messages and customized products forms the basis of permission marketing, an idea from author Seth Godin.

Permission Marketing

Seth Godin

Blogger and Author

Two hundred years ago, natural resources and raw materials were scarce. People needed land to grow food, metal to turn into pots, and silicates and other natural elements to make windows for houses. Tycoons who cornered the market in these and other resources made a fortune. By making a market in a scarce resource, you can make a profit.

With the birth of the Industrial Revolution, and the growth of our consumer economy, the resource scarcity shifted from raw materials to finished goods. Factories were at capacity. The great industrialists, like Carnegie and Ford, earned their millions by providing what the economy demanded. Marketers could call the shots, because other options were scarce.

Once factories caught up with demand, marketers developed brands that consumers would desire and pay a premium to own. People were willing to walk a mile for a Camel, and knew things go better with Coke. When brands were new and impressive, owning the right brand was vital.

But in today’s free market there are plenty of factories, plenty of brands, and way too many choices. With just a little effort and a little savings we can get almost anything we want. You can find a TV set in every house in this country. People throw away their broken microwave ovens instead of having them repaired.

This surplus situation, or abundance of goods, is especially clear when it comes to information and services. Making another copy of a software program or printing another CD costs almost nothing. Bookstores compete to offer 50,000, 100,000, or even 1 million different books—each for less than $25. There’s a huge surplus of intellectual property and services out there.

Imagine a tropical island populated by people with simple needs and plenty of resources. You won’t find a bustling economy there. That’s because you need two things in order to have an economy: people who want things, and a scarcity of things they want. Without scarcity, there’s no basis for an economy.

When there’s an abundance of any commodity, the value of that commodity plummets. If a commodity can be produced at will and costs little or nothing to create, it’s not likely to be scarce, either. That’s the situation with information and services today. They’re abundant and cheap. Information on the Web, for example, is plentiful and free.

There is one critical resource, though, that is in chronically short supply. Bill Gates has no more than you do. And even Warren Buffett can’t buy more. That scarce resource is time. And in light of today’s information glut, that means there’s a vast shortage of attention.

The combined shortage of time and attention is unique in today’s information age. Consumers are now willing to pay handsomely to save time, while marketers are eager to pay bundles to get attention.

Consumers are now willing to pay handsomely to save time, while marketers are eager to pay bundles to get attention.

Interruption Marketing is the enemy of anyone trying to save time. By constantly interrupting what we are doing at any given moment, the marketer who interrupts us not only tends to fail at selling his product, but wastes our most coveted commodity, time. In the long run, therefore, Interruption Marketing is doomed as a mass-marketing tool. The cost to the consumer is just too high.

The alternative is Permission Marketing, which offers the consumer an opportunity to volunteer to be marketed to. By talking only to volunteers, Permission Marketing guarantees that consumers pay more attention to the marketing message. It allows marketers to tell their story calmly and succinctly, without fear of being interrupted by competitors or Interruption Marketers. It serves both consumers and marketers in a symbiotic exchange.

Permission Marketing encourages consumers to participate in a long-term, interactive marketing campaign in which they are rewarded in some way for paying attention to increasingly relevant messages. Imagine your marketing message being read by 70 percent of the prospects you send it to (not 5 percent or even 1 percent). Then imagine that more than 35 percent responded. That’s what happens when you interact with your prospects one at a time, with individual messages, exchanged with their permission over time.

Permission marketing is anticipated, personal, relevant.

Anticipated. People look forward to hearing from you.

Personal. The messages are directly related to the individual.

Relevant. The marketing is about something the prospect is interested in.

I know what you’re thinking. There’s a catch. If you have to personalize every customer message, that’s prohibitive. If you’re still thinking within the framework of traditional marketing, you’re right. But in today’s information age, working with customers individually is not as difficult as it sounds. Permission Marketing takes the cost of interrupting the consumer and spreads it out, over not one message, but dozens of messages. And this leverage leads to substantial competitive advantages and profits. While your competition continues to interrupt strangers with mediocre results, your Permission Marketing campaign is turning strangers into friends and friends into customers.

The easiest way to contrast the Interruption Marketer with the Permission Marketer is with an analogy about getting married. It also serves to exemplify how sending multiple individualized messages over time works better than a single message, no matter how impressive that single message is.

Two Ways to Get Married

The Interruption Marketer buys an extremely expensive suit. New shoes. Fashionable accessories. Then, working with the best database and marketing strategies, selects the demographically ideal singles bar.

Walking into the singles bar, the Interruption Marketer marches up to the nearest person and proposes marriage. If turned down, the Interruption Marketer repeats the process on every person in the bar.

If the Interruption Marketer comes up empty-handed after spending the entire evening proposing, it is obvious that the blame should be placed on the suit and the shoes. The tailor is fired. The strategy expert who picked the bar is fired. And the Interruption Marketer tries again at a different singles bar.

If this sounds familiar, it should. It’s the way most large marketers look at the world. They hire an agency. They build fancy ads. They “research” the ideal place to run the ads. They interrupt people and hope that one in a hundred will go ahead and buy something. Then, when they fail, they fire their agency!

The other way to get married is a lot more fun, a lot more rational, and a lot more successful. It’s called dating.

A Permission Marketer goes on a date. If it goes well, the two of them go on another date. And then another. Until, after 10 or 12 dates, both sides can really communicate with each other about their needs and desires. After 20 dates they meet each other’s families. Finally, after three or four months of dating, the Permission Marketer proposes marriage.

Permission Marketing is just like dating. It turns strangers into friends and friends into lifetime customers. Many of the rules of dating apply, and so do many of the benefits.

Five Steps to Dating Your Customer

Every interaction must offer the prospective customer an incentive for volunteering. In the vernacular of dating, that means you have to offer something that makes it interesting enough to go out on a first date. A first date, after all, represents a big investment in time, money, and ego. So there had better be reason enough to volunteer.

Without a selfish reason to continue dating, your new potential customer (and your new potential date) will refuse you a second chance. If you don’t provide a benefit to the consumer for paying attention, your offer will suffer the same fate as every other ad campaign that’s vying for their attention. It will be ignored.

The incentive you offer to the customer can range from information, to entertainment, to a sweepstakes, to outright payment for the prospect’s attention. But the incentive must be overt, obvious, and clearly delivered.

This is the most obvious difference between Permission Marketing and Interruption Marketing. Interruption Marketers spend all their time interrupting strangers, in an almost pitiful attempt to bolster popularity and capture attention. Permission Marketers spend as little time and money talking to strangers as they can. Instead they move as quickly as they can to turn strangers into prospects who choose to “opt in” to a series of communication.

Second, using the attention offered by the consumer, the marketer offers a curriculum over time, teaching the consumer about the product or service he has to offer. The Permission Marketer knows that the first date is an opportunity to sell the other person on a second date. Every step along the way has to be interesting, useful, and relevant.

Since the prospect has agreed to pay attention, it’s much easier to teach him about your product. Instead of filling each ensuing message with entertainment designed to attract attention or with sizzle designed to attract the attention of strangers, the Permission Marketer is able to focus on product benefits—specific, focused ways this product will help that prospect. Without question, this ability to talk freely over time is the most powerful element of this marketing approach.

The third step involves reinforcing the incentive. Over time, an incentive wears out. Just as your date may tire of even the finest restaurant, the prospective customer may show fatigue with the same repeated incentive. The Permission Marketer must work to reinforce the incentive, to be sure that the attention continues. This is surprisingly easy. Because this is a two-way dialogue, not a narcissistic monologue, the marketer can adjust the incentives being offered and fine-tune them for each prospect. Along with reinforcing the incentive, the fourth step is to increase the level of permission the marketer receives from the potential customer. Now I won’t go into detail on what step of the dating process this corresponds to, but in marketing terms, the goal is to motivate the consumer to give more and more permission over time. Permission to gather more data about the customer’s personal life, or hobbies, or interests. Permission to offer a new category of product for the customer’s consideration. Permission to provide a product sample. The range of permission you can obtain from a customer is very wide and limited only by its relevance to the customer.

The goal is to motivate the consumer to give more and more permission over time. Permission to gather more data about the customer’s personal life, or hobbies, or interests. Permission to offer a new category of product for the customer’s consideration. Permission to provide a product sample. The range of permission you can obtain from a customer is very wide and limited only by its relevance to the customer.

Over time, the marketer uses the permission he’s obtained to change consumer behavior—that is, get them to say “I do.” That’s how you turn permission into profits. After permission is granted, that’s how it becomes a truly significant asset for the marketer. Now you can live happily ever after by repeating the aforementioned process while selling your customer more and more products. In other words, the fifth and final step is to leverage your permission into a profitable situation for both of you. Remember, you have access to the most valuable thing a customer can offer—attention.

Permission Marketing Is an Old Concept with New Relevance

Permission Marketing isn’t as glamorous as hiring Steven Spielberg to direct a commercial starring a bevy of supermodels. It isn’t as easy as running an ad a few more times. It isn’t as cheap as building a Web site and hoping that people find it on a search engine. In fact, it’s hard work. And it costs money to invest in what it takes to get a customer’s permission.

Worst of all, Permission Marketing requires patience. Permission Marketing campaigns grow over time—the opposite of what most marketers look for these days. And Permission Marketing requires a leap of faith. Even a bad interruption campaign gets some results right away, while a permission campaign requires infrastructure and a belief in the durability of the permission concept before it blossoms with success.

But unlike Interruption Marketing, Permission Marketing is a measurable process. It evolves over time for every company that uses it. It becomes an increasingly valuable asset. The more you commit to Permission Marketing campaigns, the better they work over time. And these fast-moving, leveragable processes are the key to success in our cluttered age.

So if Permission Marketing is so effective, and the ideas behind it are not really new, why was the concept not used with effectiveness years ago?

Permission Marketing has been around forever (or at least as long as dating), but it takes advantage of new technology better than any other forms of marketing. The Internet is the greatest direct mail medium of all time, and the low cost of frequent interaction makes it ideal for Permission Marketing.

Originally, the Internet captured the attention of Interruption Marketers. They rushed in, spent billions of dollars applying their Interruption Marketing techniques, and discovered almost total failure. Permission Marketing is the tool that unlocks the power of the Internet. The leverage it brings to this new medium, combined with the pervasive clutter that infects the Internet and virtually every other medium, makes Permission Marketing the most powerful trend in marketing for the next decade.

As new forms of media develop and clutter becomes ever more intense, it’s the asset of permission that will generate profits for marketers.

Source: Excerpted from Seth Godin, Permission Marketing (New York: Simon & Schuster, 1999). Adapted April 16, 2010.

Trust, as discussed in Chapter 2, is always critical. Customers are dubious of unfamiliar enterprises that have not been recommended to them. Some customers won’t buy anything online until they’ve seen other customers’ reviews and comments, even though those other customers are total strangers.

Although we talk about privacy as if it were a single topic, it is really an umbrella term, and if you ask customers what bothers them about privacy, you will get several answers.

  • The most common is a concern about criminal activity—misuse of stolen credit card numbers, usurpation of identity. This concern nearly always comes back to the issue of data security.
  • Distinct from the first point is a concern about others knowing things about them they would rather not have “out there” as common knowledge.
  • Another issue is the idea that they would rather not be bothered if they don’t want to be: spam is driving them crazy, and marketing calls at dinner are a nuisance.

Meanwhile, if you ask enterprise executives what the term privacy means to them, and they’re honest with you, you may find that privacy is a risk of fines on each breached record and a potential minefield for public relations. To the lawyers, it may be about regulation compliance and litigation avoidance. But to those in the organization whose mission is to build the value of the customer base, privacy is what customers think it is, and it’s also:

  • Getting information from customers who are comfortable giving it.
  • Using the information to build mutual value with each customer.
  • Protecting customer data as a valuable competitive asset (through data security, protective processes, and customer-focused culture).
  • Communicating data protection to customers.

Relationships require trust, and privacy is one of its underpinnings.

Moreover, as each organization moves to globalize its operations, its leaders will need to be aware of and comply with the many legal requirements of the nations in which it serves customers, and they will need to respect the individual cultures of these countries. Enterprises will also need to protect the accuracy, transmission, and accessibility of their customer records. In the next few sections, we examine how enterprises protect the precious customer data they collect. We also peer into the many differences between privacy rules in the United States and Europe.

Individual Privacy and Data Protection

Larry A. Ponemon, Ph.D.

Chairman, The Ponemon Institute

Businesses and governments have a responsibility to maintain the security and integrity of personal data that they process. The competitive pressure to profit from data collected about a customer by analyzing it for the purposes of personalization and customization collides with privacy concerns. Advocates believe it can help customers save time and effort and supply them with better targeted offers and improved customer service. When users provide personally identifiable information during a transaction, they are looking for assurance that their personal data will not be misused. Although the data can be traced to a computer, most data collected are anonymous. It is when a user provides personally identifiable information by filling out a form or volunteering personal information during a transaction that the concerns of potential abuse grow stronger. Other areas of particular concern include linking personally identifiable profiles with more extensive demographic or credit card information or connecting and reselling information from disparate data sources.

Chief Privacy Officers Protect Customer Privacy—Ours or Theirs?

Some enterprises, recognizing the new importance of the spectrum of privacy issues, particularly if their business faces global trading issues, have created the full-time position of Chief Privacy Officer instead of assigning this responsibility to existing positions, such as the Chief Information Officer or the Chief Technology Officer. Corporate icons such as American Express, Citigroup, Prudential Insurance, and AT&T have hired privacy officers who in many cases report directly to the chairman or the CEO. At the Internet Advertising Bureau’s Privacy Forum, Rich LeFurgy, Internet Advertising Bureau chairman and general partner, Walden VC, explained, “At the center of all business models is consumers. Protecting their PII (personally identifiable information) is the key to the future.”

The responsibilities of the chief privacy officers (CPOs) (often undertaken by the Chief Information Officer) include addressing the following:

  • How does the company ensure that consumers will be notified about what information is collected?
  • How can the company protect personal data from unauthorized use?
  • How does a company provide consumers access to their personal information and the ability to change it?
  • How does a company have guidelines for the use of personal information?
  • Does it have a complete data-flow map showing the flow of information?
  • What procedures ensure consumers are notified of changes in privacy policies?
  • Is notification enough? Or is awareness required?
  • What procedures exist to ensure business partners use personal information according to policy?
  • Is compliance enough? Or is establishing trust required?
  • How often does the company train employees on fair information and privacy practices?

As enterprises continue to globalize their operations, they need to be sensitive to, and in compliance with, the legal requirements and cultural sensitivities of the individuals with whom they do business. In addition, they need to protect adequately the accuracy, integrity, transmission, and accessibility of their electronic records and, in some nations, paper records. Regulatory compliance is not achieved without cost to the organization; and, where regulation exists, it must be complied with. However, beyond reducing the risk of regulatory noncompliance, the benefits of good privacy practice include:

  • Reduction of cost by eliminating the collection and management of unnecessary information.
  • Reduction of the risks associated with inaccurate or out-of-date information.
  • Improvement in consumer and employee trust and confidence in the use and security of personal data.

Ultimately, the business concerns about issues surrounding privacy fall into two categories:

1. Individual privacy. On an international level, the United Nations Declaration of Human Rights and the European Convention on Human Rights recognize privacy as a fundamental human right. Many nations have constitutional provisions, legislation, or court decisions that define the individual’s right to privacy as the right to be left alone—to be free from unwarranted intrusion.

2. Data protection. Businesses and governments have a responsibility to maintain the security and integrity of the data that they process. For businesses, this primarily means information gathered about individual customers and employees that is collected in the course of completing business transactions.

Today, consumer privacy concerns have been heightened by the technological changes surrounding the Internet. Technological improvements also put new pressures on businesses. Online companies that are under intense pressure to differentiate themselves are motivated to enhance value by outfitting their sites with increased personalization, requiring more granular customer data. Consumers express concern that inaccurate information can be used against them or affect them in the future, that personal information will be disclosed to third parties without their knowledge and consent, and that the security that surrounds their data is lacking. Identity theft provides just one example of how real these concerns are.

A comprehensive approach to data protection and privacy compliance identifies and resolves the issues while noncompliance creates unnecessary risks. By identifying the elements of current regulatory and self-regulatory approaches to privacy, it is possible to derive a set of common elements that can serve as a starting point for an organization’s global privacy compliance initiatives. Such a framework should include the following key elements.a

  • Notice. The enterprise provides data subjects with clear and prominent notice of who is collecting their personal information, the intended use of the information, and its intended disclosure.
  • Choice. The enterprise offers data subjects choices as to how their personal identifying information will be used beyond the use for which it was provided; choices would encompass both internal secondary uses such as marketing back to data subjects, and external secondary uses such as disclosing data to other entities.
  • Access. The company enables data subjects to obtain appropriate access to information that it holds and to correct or amend that information where necessary.
  • Data security. The enterprise takes reasonable precautions to protect data from loss, misuse, alteration, or destruction and ensure that those to whom data is transferred have adequate privacy protection.
  • Data integrity. The firm keeps only personal data relevant for the purpose for which it has been gathered, consistent with the elements of notice and choice.
  • Onward transfer. The firm transfers data only as consistent with the elements of notice, choice, and security.
  • Enforcement. The company ensures compliance with key privacy elements and provides recourse for individuals, such as complaint and dispute procedures, verification of ongoing compliance, and obligation to remedy problems arising from noncompliance.

Source: Adapted from Larry Ponemon, Ph.D., “Individual Privacy and Data Protection,” in Don Peppers and Martha Rogers, Ph.D., Managing Customer Relationships: A Strategic Framework (Hoboken, NJ: John Wiley & Sons, 2004), pp. 228–232.

aWylie Wong, “Sun Switches Gears on Security,” CNET News, July 25, 2002.

Privacy in Europe Is a Different World

The privacy debate in Europe is just as fierce as in the United States, although the rules about privacy are starkly different in Europe. In the United States, an individual’s habits and behavior may be examined by an employer, a retail merchant, and by companies on the Web. This information is then used to target the customer for marketing purposes or is resold to other companies. By contrast, in most European countries, it is illegal to monitor an individual under any of these circumstances and use the information to target the customer. The ground rules for privacy for members of the European Union (EU) are laid down in the European Union Data Protection Directive, originally adopted in 1995, which applies to electronic and paper filing systems, including financial services. The directive requires EU member states to amend national legislation to guarantee individuals certain rights to protect their privacy and to control the contents of electronic databases that contain personal information. The data covered by the directive are information about an individual that somehow identify the individual by name or otherwise. Each European nation’s government implements the directive in its own way.

Under the directive, information about consumers must be collected for specific, legitimate purposes and stored in individually identifiable form. Those collecting the data must tell the consumer who ultimately will have access to the information. The rules are stricter for companies that want to use data in direct marketing or to transfer the data for other companies to use in direct marketing. The consumer must be explicitly informed of these plans and given the chance to object. U.S. and European principles on privacy share a key similarity. The Data Protection Directive and U.S. privacy laws attempt to protect human rights. However, both do little to check the growth of government databases or information-collection powers. In his white paper, “Privacy and Human Rights: Comparing the United States to Europe,” Solveig Singleton writes:

The view that uses of information for marketing in the private sector themselves violate human rights is a peculiar one. Why should a business not be free to record and use facts about transactions, about real people and real events, to develop products and to identify people who might have an interest in its products? Once a consumer enters into a transaction with another entity, this entity has as much of a right to use the information about the transaction as the consumer. Why would it violate someone’s rights to use information about him to sell him something? This is a far cry from torturing him or seizing his home.11

Europeans do not allow the sharing of personal information between enterprises; this area is not yet regulated by the U.S. government.12 In contrast to the United States, where more of a free market approach is taken to many things, including customer privacy protection, the European Privacy Directive prohibits enterprises from transferring electronic records of personal information—including names, addresses, and personal profiles—across borders. It is at least partly intended to reduce trade barriers within the EU by standardizing how various companies treat individual information in different countries. If European nations must follow the same standards about privacy protection, then trade between nations can occur more freely. Personal data on EU citizens may be transferred only to countries outside the 15-nation block that are deemed to provide “adequate protection” for the data. But the rising use of social networking sites worldwide is putting the European Privacy Directive to the test. A strict reading implies those that who “tag” their friends in Facebook, upload videos to YouTube, or post other personal material to social networking sites without consent are breaking the law.13

European Organization for Economic Cooperation and Development Privacy Guidelines

1. Data must be collected using lawful and fair means and, where possible, with the consent of the subject.

2. Data must be accurate, complete, and up-to-date to ensure quality is adequate for use.

3. Purposes of data usage should be specified prior to collection and should not be subsequently extended.

4. Personal data should not be disclosed without legal cause or the consent of the data subject.

5. Data should be protected by reasonable security safeguards.

6. The existence and nature of personal data should be discoverable.

7. Data should be available to the subject to enable the correction of inaccurate information.

Source: Partial list excerpted from “OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data,” available at: www.oecd.org, accessed September 1, 2010.

Data protection negotiations between the United States and the EU reached a pivotal point in July 2000, when the European Commission declared that the Safe Harbor arrangement put in place by the U.S. government to protect personal data transmitted in the course of Internet commerce must meet EU standards. The Safe Harbor agreement states that if U.S. enterprises agree to a certain set of minimal privacy standards when doing business in Europe, they will be free from litigation. It was aimed at heading off the possibility that data transfers to the United States might be blocked following the enactment of the EU’s Data Protection Directive. Under Safe Harbor, U.S. companies can voluntarily adhere to a set of data protection principles recognized by the commission as providing adequate protection and thus meeting the requirements of the directive regarding transfer of data out of the EU.

The Safe Harbor standards, however, are not as rigorous as what Europeans have set for themselves. As part of the agreement, the U.S. Federal Trade Commission (FTC) and U.S. judicial system will be authorized to impose sanctions on companies that violate data privacy rules. The U.S. Commerce Department will keep tabs on self-regulating companies, which will have to apply annually for membership in the department’s register. Although participation in the U.S. Safe Harbor scheme is optional, its rules are binding on U.S. companies that decide to join, and they are enforced by the FTC.

The Privacy Directive serves an important purpose within Europe, by synchronizing these various government policies, to make it easier for any company to do business across the continent. However, some U.S. enterprises are criticizing it as little more than a nontariff trade barrier, designed primarily to ensure that any new, pan-European customer service infrastructures are staffed by employees working within the boundaries of the EU itself.

Where it exists, a regulatory approach such as the Privacy Directive may or may not be effective at curbing the abuse of individual consumer privacy. But it could potentially curb Europe’s economic growth prospects and threaten consumers’ own interests as well. Managing relationships in the interactive age depends on the collection and use of individual customer information. As enterprises become increasingly global, it is vital that this information be accessible to sales, marketing, and customer care professionals worldwide. It is the only way to provide seamless, personal service—based on a unified view of the customer—across borders. Call centers or Web sites in Ireland might serve consumers in the United States or Argentina as well as in France or Italy.

The potential impact of the directive, if enforced as written, is extreme. Sweden’s privacy agency told American Airlines in 1999 that it could not transmit information about Swedish passengers to its U.S.–based Sabre system. This, in effect, would have prevented the airline from individualizing its service offering to its Swedish customers. Under the directive, it is even conceivable that a person could be arrested for saving business card data to his laptop and trying to cross the border with it.

No matter where in the world it conducts business, the customer-strategy enterprise tries to remain sensitive to how privacy rules are enforced and respected. Critical, too, is that the enterprise show to the world that it respects each customer’s right to privacy through the publication of and adherence to its own written privacy pledge.

Privacy Pledges Build Enterprise Trust

If the enterprise is to establish a long-term relationship with a customer based on individual information, it will recognize that customer data are its most valuable asset, will secure and protect that data, and will share the policy for that protection in writing with its customers, partners, and vendors, in the form of a privacy pledge. That pledge will permeate its own culture and be part of its employees’ DNA. The privacy pledge will spell out:

  • The kind of information generally needed from customers
  • Any benefits customers will enjoy from the enterprise’s use of this individual information
  • Any events that might precipitate a notification to the customer by the enterprise
  • An individual’s options for directing the enterprise not to use or disclose certain kinds of information

Enterprises sometimes jeopardize their relationships with customers by engaging in unethical moves that compromise customer privacy for short-term marketing gain. That’s why enforcing a privacy policy is reassuring to many customers. Fortunately, according to a survey done by the Retail Industry Leaders Association and Retail Systems Research, 72 percent of top retailers understand that customers are concerned about privacy and that their personal information must be protected.14 But being careful with customer data is not enough for the enterprise. Such a company must also get agreements in writing with all its vendors and partners that confirm they too will comply with enterprise privacy standards. A midwestern bank committed to protecting its customers’ information learned that a printing company that produced checks for the bank’s customers had been copying the names and addresses of customers, routinely printed in the upper left corner of the checks, and reselling that information to list brokers. These list sellers in turn were selling the information to insurance agencies, garden supply companies, competitive financial services institutions, and others.

As the privacy debate rages, customers are, more and more, aware of whether they are given a chance either to opt in (proactively elect to receive future communications from the enterprise) or opt out (tacitly choose to receive them by inaction, unless they actively opt out). Consumer groups tend to favor opt-in as a better protection for consumers, whereas industry groups point to very low participation levels and, ironically, fewer targeted messaging efforts, and therefore tend to favor opt-out. Frequently, however, this opt-in or opt-out choice is an all-or-nothing toggle switch. To treat customers in a more one-to-one fashion, best practice today is to offer choices to the customer, with respect not just to the types of information he may choose to receive, but also as to the frequency with which he is contacted with this information.

What greater assets do any company, online or off, have to dangle in front of other companies than the private data of thousands, or even millions, of customers? Do the rules change when a company is bought out or goes bankrupt? What happens to a company’s privacy pledge when there no longer is a company? And what guarantee is there that the new owner of your data will honor the same privacy standards as the former owner?

There is a simple, universal solution: The global business community needs to prevent such abuses, and preferably without government intervention. In this Information Age, technologies are cropping up to help the process. Software enables online users to control how sites collect, control, use, and share their personal information. With privacy pledges under scrutiny, more enterprises are adopting and publicizing them. Nonetheless, many enterprises still do not state their policies, and others never share user data with third parties.

What constitutes a good privacy protection policy? For starters, it should explain to customers what kinds of information the company needs from them, how the information will be used, and how it will not be used. It should also explain the benefits a customer would gain by sharing personal information. Enterprises need to promote their privacy policies beyond the Web site and corporate promotional collateral, including it in direct-mail pieces, invoices, and other company mailings. A privacy policy will reinforce the foundation on which each customer relationship is built. Trust is an essential part of any Learning Relationship, and a privacy policy helps build that trust.

Building a trusted relationship goes far beyond simply writing a privacy policy and posting it on the Web site. Unless the enterprise is careful as to how it uses sensitive customer information, the opportunity for forming Learning Relationships may disappear. It is important to recognize, however, that some individuals do not want companies to know which Web sites they visit or anything about their personal information. In the headlong rush of enterprises to use the latest databases, data-mining techniques, neural nets, and Internet-based information collection systems, some have neglected or overlooked this important issue. Moreover, a customer’s willingness to collaborate with an enterprise by interacting with the firm could be one important measure of the customer’s value to the enterprise.

It is important to explain the motives for wanting to create a relationship with a customer. Enterprises need to describe to customers how they will benefit by exchanging personal information with them. Once customers have read the privacy pledge and understand that their personal information will not be sold or shared irresponsibly, they simply want to know how providing their personal data will affect customer service. Beyond the security or convenience of the actual transaction, what assurance does a customer have that his personal information will not be misused or abused? After all, most customers have experienced the irritation of “getting on a list” and, as a consequence, received unsolicited direct mail and outbound telemarketing calls. Ironically, if a customer does not provide information to an enterprise about what he likes to buy, the likelihood is that he will receive more junk mail or direct-mail pieces that promote products and services of little interest to him and his needs. Clearly, this question has yet to be definitively resolved.15

These and many other privacy-related questions may never be fully settled. But the customer-based enterprise has to monitor changing privacy issues closely. Intensifying the privacy debate is the way customer information is being collected and used on the Internet. The Web has created a powerful medium to collect and analyze customer data. But how can enterprises afford customers the same privacy protection online as they do in the “real world”? And how sensitive are customers to divulging personal information on the Web?

Ten Points to Consider in Developing a Company’s Privacy Pledge

Every enterprise that maintains a Web site or collects personal information about its customers needs to establish an explicit privacy protection policy. The enterprise might call it a Privacy Pledge or a Privacy Bill of Rights, but it needs to consider covering these 10 key points:

1. Itemize the kind of information it collects about individual customers.

2. Specify how personal information will be used by the company. If its policy is to use this kind of information only within the company on a need-to-know basis, and not to make it accessible to unauthorized employees at any time, the enterprise needs to explain this policy explicitly.

3. Make whatever commitments it can make with respect to how individual customer information will never be used (e.g., personal information is never sold or rented to others, or never used to change prices or insurance premiums, etc.).

4. State the benefits an individual customer can expect as a result of its use of his information (faster or preferential service, reduced costs, etc.).

5. List a customer’s options for directing the enterprise not to use or disclose certain kinds of information.

6. State how a customer can change or update personal information it has collected. For example, can the consumer access his profile or account information online or modify it?

7. Identify events that might precipitate a notification to the customer by the enterprise. If, for instance, a court subpoenas your customer records, will you notify any customers whose information was subpoenaed?

8. Assign a corporate executive as the “data steward,” charged with overall responsibility for assuring the adherence to company information and privacy policies.

9. Specify the situations in which it accepts or denies liability for damages incurred through the collection and use of customer data, such as through credit card fraud or misuse.

10. Provide specific procedures allowing a customer to order the company to stop collecting data about him, or to purge his information files at the company.

Source: From Don Peppers, Martha Rogers, Ph.D., and Bob Dorf, The One to One Fieldbook (New York: Doubleday, 1999), 99–100.

The bottom line is that the information that technology provides about your customers, and the increasingly cost-efficient tools you have to interact directly with customers and to facilitate them interacting with each other, should be used to build more trust. It really won’t matter what your formal privacy protection policy is, or how well you comply with whatever anti-spam regulations are enforced, if you don’t see the problem through the right end of the telescope—that is, from the customer’s perspective. Fail to take this point of view and you are still going to be undermining your customers’ trust.16

Submitting Data Online

For many consumers who buy online, the protection of their personal information is a valid concern. To the selling enterprise, however, information is like currency—it enables them to identify customers and customize their offerings based on that information.

By personalizing their products and services for online customers, enterprises stand to enhance their revenue. More than half of frequent online shoppers are more likely to make a purchase on a Web site that offers personalization features.17 Still, online users believe that Web sites should be accountable for explaining to them how their information will be used, as more and more consumers feel out of control regarding their personal information.18 According to a Pew Internet & American Life survey on cloud computing:

  • 90 percent of users would be “very concerned” if the company storing their data sold it to another company.
  • 80 percent would be “very concerned” if companies used their data for marketing purposes.
  • 68 percent would be “very concerned” if service providers analyzed their information and then displayed ads to them based on their actions.19

Web site personalization requires consumers to submit information about themselves, such as their names, zip codes, interests, and even credit card numbers. Consumers personalize the online sites they visit to enhance their online experiences, but many do not want to have their information shared among Web sites without their knowledge.

Personalization online helps customers to access the specific content and products they are looking for while giving the enterprise access to their browsing habits. For many enterprises, the objective of personalization on the Web is to increase customer loyalty through return visits. Privacy advocates claim that the instances of abuse of consumer data are a sign of how Internet marketers are overstepping their boundaries. The marketers, in turn, argue that data gathering is merely a nonthreatening way of fine-tuning marketing for the convenience of consumers. A firm will have to accomplish two things to break down the mistrust barrier between the customer and the online merchant:

1. Offer assurances of confidentiality. Customers want to know whether their personal data will be sold or used beyond simply information gathering.

2. Build Learning Relationships on trust. Enterprises will need to develop individual, personalized relationships with their customers to promote trust and enhance loyalty.

As privacy-protection advocates in Australia, the United States, and Europe continue to fuel the debate that it is wrong for companies to abuse personal information about their customers on the Web, enterprises will need to take a balanced view, not second-guess what their customers “really” want. The customer-strategy enterprise will strive to protect an individual’s privacy online but also weigh the real benefits of personalization against its real costs, as we see in the following excerpt, from Blown to Bits, by Abelson, Ledeen, and Lewis.

Blown to Bits

Hal Abelson

Class of 1922 Professor of Electrical Engineering and Computer Science, Massachusetts Institute of Technology, and IEEE Fellow

Ken Ledeen

Chairman and Chief Executive Officer, Nevo Technologies, Inc.

Harry Lewis

Gordon McKay Professor of Computer Science, Harvard University

Why can’t we just keep our personal information to ourselves? Why do so many other people have it in the first place, so that there is an opportunity for it to go astray, and an incentive for creative crooks to try to steal it?

We lose control of our personal information because of things we do to ourselves, and things others do to us. Of things we do to be ahead of the curve, and things we do because everyone else is doing them. Of things we do to save money, and things we do to save time. Of things we do to be safe from our enemies, and things we do because we feel invulnerable. Our loss of privacy is a problem, but there is no one answer to it, because there is no one reason why it is happening. It is a messy problem, and we first have to think about it one piece at a time.

We give away information about ourselves—voluntarily leave visible footprints of our daily lives—because we judge, perhaps without thinking about it very much, that the benefits outweigh the costs. To be sure, the benefits are many.

Saving Time

For commuters who use toll roads or bridges, the risk-reward calculation is not even close. Time is money, and time spent waiting in a car is also anxiety and frustration. If there is an option to get a toll booth transponder, many commuters will get one, even if the device costs a few dollars up front. Cruising past the cars waiting to pay with dollar bills is not just a relief; it actually brings the driver a certain satisfied glow.

The transponder, which the driver attaches to the windshield from inside the car, is a radio frequency identification (RFID), powered with a battery so identifying information can be sent to the sensor several feet away as the driver whizzes past. The sensor can be mounted in a constricted travel lane, where a toll booth for a human toll taker might have been. Or it can be mounted on a boom above traffic, so the driver doesn’t even need to change lanes or slow down

And what is the possible harm? Of course, the state is recording the fact that the car has passed the sensor; that is how the proper account balance can be debited to pay the toll. When the balance gets too low, the driver’s credit card may get billed automatically to replenish the balance. All that only makes the system better—no fumbling for change or doing anything else to pay for your travels.

The monthly bill—for the Massachusetts Fast Lane, for example—shows where and when you got on the highway—when, accurate to the second. It also shows where you got off and how far you went. Informing you of the mileage is another useful service, because Massachusetts drivers can get a refund on certain fuel taxes, if the fuel was used on the state toll road. Of course, you do not need a Ph.D. to figure out that the state also knows when you got off the road, to the second, and that with one subtraction and one division, its computers could figure out if you were speeding. Technically, in fact, it would be trivial for the state to print the appropriate speeding fine at the bottom of the statement, and to bill your credit card for that amount at the same time as it was charging for tolls. That would be taking convenience a bit too far, and no state does it, yet.

What does happen right now, however, is that toll transponder records are introduced into divorce and child custody cases. You’ve never been within five miles of that lady’s house? Really? Why have you gotten off the highway at the exit near it so many times? You say you can be the better custodial parent for your children, but the facts suggest otherwise. As one lawyer put it, “When a guy says, ‘Oh, I’m home every day at five and I have dinner with my kids every single night; you subpoena his E-ZPass and you find out he’s crossing that bridge every night at 8:30. Oops!” These records can be subpoenaed, and have been, hundreds of times, in family law cases. They have also been used in employment cases, to prove that the car of a worker who said he was working was actually far from the workplace.

How Sites Know Who You Are

1. You tell them. Log in to Gmail, Amazon, or eBay, and you are letting them know exactly who you are.

2. They’ve left cookies on one of your previous visits. A cookie is a small text file stored on your local hard drive that contains information that a particular web site wants to have available during your current session (like your shopping cart), or from one session to the next. Cookies give sites persistent information for tracking and personalization. Your browser has a command for showing cookies; you may be surprised how many web sites have left them!

3. They have your IP address. The web server has to know where you are so that it can ship its web pages to you. Your IP address is a number like 66.82.9.88 that located your computer in the Internet. … That address may change from one day to the next. But in a residential setting, your Internet Service Provider (your ISP—typically your phone or cable company) knows who was assigned each IP address at any time. Those records are often subpoenaed in court cases.

If you are curious about who is using a particular IP address, you can check the American Registry of Internet Numbers (www.arin.net). Services such as whatismyip.org and ipchicken.com also allow you to check your own IP address. And www.whois.net allows you to check who owns a domain name such as Harvard.com—which turns out to be the Harvard Bookstore, a privately owned bookstore right across the street from the university. Unfortunately, that information won’t reveal who is sending you spam, since spammers routinely forge the source of email they send you.

Source: Excerpted with permission from Hal Abelson, Ken Ledeen, and Harry Lewis, Blown to Bits: Your Life, Liberty, and Happiness After the Digital Explosion (Reading, MA: Addison-Wesley Professional, 2008), p. 40.

It’s Just Fun to Be Exposed

Sometimes, there can be no explanation for our willing surrender of our privacy except that we take joy in the very act of exposing ourselves to public view. Exhibitionism is not a new phenomenon. Its practice today, as in the past, tends to be in the province of the young and the drunk, and those wishing to pretend they are one or the other. That correlation is by no means perfect, however. A university president had to apologize when an image of her threatening a Hispanic male with a stick leaked out from her MySpace page, with a caption indicating that she had to “beat off the Mexicans because they are constantly flirting with my daughter.”

And there is a continuum of outrageousness. The less wild of the party photo postings blend seamlessly with the more personal of the blogs, where the bloggers are chatting mostly about their personal feelings. Here there is not exuberance, but some simpler urge for human connectedness. That passion, too, is not new. What is new is that a photo or video or diary entry, once posted, is visible to the entire world, and that there is no taking it back. Bits don’t fade and they don’t yellow. Bits are forever. And we don’t know how to live with that.

For example, a blog selected with no great design begins:

This is the personal website of Sarah McAuley. … I think sharing my life with strangers is odd and narcissistic, which of course is why I’m addicted to it and have been doing it for several years now. Need more? You can read the “About Me” section, drop me an email, or, you know, just read the drivel that I pour out on an almost-daily basis.

Because You Can’t Live Any Other Way

Finally, we give up data about ourselves because we don’t have the time, patience, or single-mindedness about privacy that would be required to live our daily lives in another way. In the United States, the number of credit, debit, and bank cards is in the billions. Every time one is used, an electronic handshake records a few bits of information about who is using it, when, where, and for what. It is now virtually unheard of for people to make large purchases of ordinary consumer goods with cash. Personal checks are going the way of cassette tape drives, rendered irrelevant by newer technologies. Even if you could pay cash for everything you buy, the tax authorities would have you in their databases anyway. There even have been proposals to put RFIDs (radio frequency identifications) in currency notes, so that the movement of cash could be tracked.

Only sects such as the Amish still live without electricity. It will soon be almost that unusual to live without Internet connectivity, with all the fingerprints it leaves of your daily searches and logins and downloads. Even the old dumb TV is rapidly disappearing in favor of digital communications. Digital TV will bring the advantages of video on demand—no more trips to rent movies or waits for them to arrive in the mail—at a price: Your television service provider will record what movies you have ordered. It will be so attractive to be able to watch what we want when we want to watch it, that we won’t miss either the inconvenience or the anonymity of the days when all the TV stations washed your house with their airwaves. You couldn’t pick the broadcast times, but at least no one knew which waves you were grabbing out of the air.

Source: Excerpted with permission from Hal Abelson, Ken Ledeen, and Harry Lewis, Blown to Bits: Your Life, Liberty, and Happiness After the Digital Explosion (Reading, MA: Addison-Wesley Professional, 2008), pp. 36–37, 40–42.

So much changed about the U.S. national attitude toward privacy on September 11, 2001. With the terrorist attacks on New York and Washington, D.C., U.S. national security was threatened as it had never been before. But on a more personal level, U.S. citizens felt that their individual safety was in jeopardy. The threat of additional terrorist attacks led to a heightened state of security at many public places, including airports, sporting events, and bridges and tunnels.

Universal ID

One solution offered after September 11, 2001, was the creation of a Universal ID card for each citizen to carry. The card could contain an electronic thumbprint of the cardholder so the person could be easily identified if questioned. This concept is akin to automobile license plates, which automatically expose the owner of the vehicle to the police, who simply need to check the plate number against their database. Would citizens be opposed to carrying a card that revealed personal information to anyone who swipes their cards? What about an embedded RFID chip?

In the immediate aftermath of September 11, the civil rights of private citizens became a public issue. How much could the government encroach on a person’s right to privacy in the shadow of terrorism? How much was okay if it made us all safer? What if it only made us feel safer? Could the government begin to check the backgrounds and personal information of anyone it deemed to be a suspicious terrorist?

As you read Esther Dyson’s classic contribution, Privacy on the Net, think about what the world will be like in a few years. What would happen if enterprises and the government became adept at combining personal information about individuals from different sources? What would it mean for people who participate in society and those who do not (such as the Amish)?

Privacy on the Net

Esther Dyson

Chairman, EDventure Holdings

By 1997, consumer privacy had become a big issue in the United States. A number of trends had been combined. More data was being collected, online and off. Direct marketers, telemarketers, and assorted shady people were invading people’s privacy, and press coverage highlighted this issue. The Federal Trade Commission held hearings on consumer privacy, saying in effect: “Tell us the problems and propose some solutions, or we’ll have to regulate.”

There were also several bills pending in Congress, likely to change form over time: the Consumer Internet Privacy Protection Act of 1997 (Rep. Bruce Vento, D-MN); the Children’s Privacy Protection and Parental Empowerment Act (Rep. Bob Franks, R-NJ); and the Communications Privacy and Consumer Empowerment Act (Rep. Ed Markey, D-MA).

With some justification, many people, both potential users and potential government regulators, perceived the Net as a scary, unregulated place. The Net makes it even easier for lots of people, not just well-capitalized mass marketers or obsessive creeps, to get at information and use it for undesirable and even dangerous ends.

Beyond Web Sites, beyond Labels

These issues of privacy didn’t begin with the Internet, and they can’t be resolved by controlling what happens on any, or even all, individual Web sites. The problems arise when information travels among Web sites—or away from them to places where people and companies assemble databases of information gleaned from many Web sites and from non-Web mailing lists, directories, news reports, listings … and other databases. A lot of this information has traditionally been available to people willing to go to a lot of trouble, visiting county document vaults, calling companies posing as a prospective employer or old boyfriend, or spending several hundred dollars to get an investigator’s license. It has also been available on a random basis to criminals in jail doing data-entry work, bored clerks at the IRS, and various other untrustworthy people in trusted positions.

Many companies, notably TRW, Equifax, metromail, and some credit card providers, manage huge amounts of such data and trade it among themselves. Yes, it makes the economy more efficient and keeps revenues up and costs down. But not all of the companies who manage the information are especially honorable—nor are all of their employees.

The growing presence of the Web increases the ease of both collecting such data and assembling it. The interconnectedness of the Net makes safeguarding privacy an increasing challenge. People are rightly concerned about the combination of data from different sources: Web behavior, buying habits, travel history, income data. Often, facts are innocuous until they’re combined with other facts.

The user wants a seamless experience as he explores the Web, but he wants to appear as a discrete entity to each place he visits, with a legitimate identity revealed as appropriate—a credit rating, an employment record, a bank account, or a medical history. Indeed, a person’s identity gets plastered all over the Net in little fragments—no problem. But then someone in particular—anyone from a benign marketer only after the customer’s business, to an employer, a stalker, or a blackmailer—can start collecting those fragments. One version of the problem is when the data are incorrect (and the user is the last to know); another version is when they are true.

In response, the marketplace and the government are setting up systems to foster privacy. As a society, we can’t totally guarantee everyone’s privacy. But we can create a situation where people can choose the lever of privacy they want according to trade-offs they determine for themselves, and provide them with a means of recourse when promises are breached. When that happens, I believe, people will feel more comfortable on the Net overall and no longer fear the visibility it fosters.

Two Kinds of Information

There are two broad classes of information about yourself that you create on the Net: one kind that you generate when you engage in a one-to-one transaction with someone, and another kind that you generate when you do something in “public”—post an opinion, send out a message to several people, or supply information on your own Web site.

The “one-to-one” data is created by a variety of individual exchanges and transactions—anything from visiting a Web site to buying a racy book, revealing personal data in order to win a prize, or stating your income on Barron’s site for investors. In principle such information is private—but not in practice. Here’s one tale of woe from Russell Smith, a privacy activist who testified at the Federal Trade Commission hearings:

… my every move on the Internet could potentially be tracked. For instance, I recently did a search of newsgroups via the DejaNews service. In my search I was searching on my username “russ-smith.” The search turned up an entry in some type of an adult newsgroup. When I clicked on the message it turns out it had nothing to do with me. However, the banner ad I received was for an adult site from a widely used banner network called The Link Exchange. Does my profile now include this information? Is my search criterion (“russ-smith”) also associated with this information? Do they have my name and address since I have purchased products (and entered personal information) at other sites with these banner ads? Is it being sold? How can I find out? Can I expunge it?

Flawed Solutions

The solutions most often presented in response to this situation generally miss the point. We don’t need new government regulation that stops the free flow of information voluntarily given, outlaws cookies, and makes customization difficult (except perhaps where children and coercion are concerned).

Nor do we need a Direct Marketed Association—a force equal in power to the Direct Marketing Association but aligned with someone’s vision of consumers’ interests. After all, consumers don’t all have the same interests; what they really need is choice.

Instead, we need the kinds of policies that the Liberty Alliance is fostering, which would allow users more control over the kind of data that gets passed from vendor to vendor. An even more user-focused initiative is Ping Identity, based in Denver.

Tools for Customer Empowerment

Much as I hate the term, what I’m talking about here is customer “empowerment,” not “self-regulation”—transforming passive customers into active customers who can monitor vendor practices for themselves. That implies some kind of broad movement to give customers the tools to do so, but the actual enforcement and use of the tools should be decentralized into users’ hands.

The reason to avoid government regulation is not that government oversight is always bad; government courts and other enforcement mechanisms are a necessary backup to systems such as TRUSTe and Liberty Alliance. It’s simply that front-line customer enforcement is likely to be more flexible and more responsive to actual conditions than government regulation. A decentralized system scales up nicely and crosses borders with ease. Customer enforcement will give users greater choice, while at the same time giving them confidence that they can trust the medium. People can pick data-control practices that suit them, rather than be forced to operate in a one-rule-fits-all environment. The overriding rule should be that providers must disclose—label—themselves clearly and honestly. And then they must do what they promise.

The goal is not to regulate cyberspace, nor to solve all problems concerning privacy (or content) online, but rather to carve out enough clean, well-lighted territory so that the dark parts of the Net lose their power to scare people away. In the end, most people will prefer to live in safe neighborhoods, while potential predators will find few victims other than their own kind.

In practice, privacy protection is more than data or technology. How can we achieve it without making the world into a sterile place where everyone is anonymous? Most customers actually like to be treated as known individuals by marketers that they in turn know and trust. The rhetoric promises a global village, not a global city. Real privacy—which is respect for people rather than mere absence of data—depends on human judgment and common sense.

Real privacy—which is respect for people rather than mere absence of data—depends on human judgment and common sense.

What Would Deep Blue Be Like with Hormones?

Let’s try a thought experiment. Imagine that you have lived your entire life on the Net, isolated from the physical world. You know a lot of people intimately: You’ve heard their ideas; you’ve argued with them; you’ve watched them mature, get angry, trade jokes, do business, make and lose friends. You have made and lost friends yourself. These people are real to you; you want their respect; you ask them for advice. And you are real to them. You and they take your Net presence for granted—all the things you have ever posted, all the data about you, all the Net chatter about you. But you have never seen them.

Now suppose you meet these people in real, physical, terrestrial life. They’re fat or thin; blond or dark; young or old; white or African American or Asian; male or female. There’s more! Each person has these little peculiarities—a scar, asymmetrical eyebrows, a particular style of dress or pattern of speech, and so on. None of them is any big deal; they’re merely expressions of each person’s identity. (Yes, some people do hate their nose, undergo cosmetic surgery, or have an obsession with their own hair, but few people wear a mask.)

None of these features is any big secret, and most are familiar (if not explicitly so) to that person’s friends and even acquaintances. Others—for example, presidents and movie stars—are known to the world. Some are genetically determined; some are shaped by the person; some are an artifact of culture (such as a woman’s shaved legs).

But how about you? You would probably at first be very sensitive about your own physical being. You would feel vulnerable and exposed as you joined the physical world. All these people can see how you look, judge your hairstyle, criticize your weight or your taste in shirts… . Should you shave? Should you wear your trousers rolled?

But after a while you would probably relax, just as you have already in the real world since being an awkward teenager. People know how you dress and how you look, and most of them now are accustomed to it. Meanwhile, you’re accustomed to the face you present to the world. You may be taken aback to see your profile or, worse, the back of your head in a mirror. But on the whole, you’re probably relaxed about your physical existence because it has come to seem normal.

That same thing happens with your Net persona.

The New Privacy

As people feel more secure in general on the Net, they will become accustomed to seeing their words recorded and replayed. They will no longer feel uncomfortable being on display, since everyone around them is on display too. In the same way, feelings of physical exposure tend to depend on fashion and custom as well as innate sensibility. Thirty years ago the sight of a woman’s navel was shocking except by the pool; now it’s routine. One hundred years ago, a nanny told my grandmother she was a “shameless hussy” for taking off her shoes at the beach.

Everyone has personal preferences for privacy, but they are influenced by the surrounding culture and by the surrounding economy. It’s hard to fulfill a desire for privacy if you’re living in a one-room apartment with the rest of your eight-person extended family. If you travel or mingle with people from other cultures, you will notice that Americans expect a lot more “personal space” than most people.

Nowadays, people reveal much more about themselves—for better or worse—than they used to. It’s inevitable that people will simply become more comfortable with the fact that more information is known about them on the Net. The challenge is not to keep everything secret, but to limit misuse of such information. That implies trust, and more information about how the information is used. At the same time, we may all become more tolerant if everyone’s flaws are more visible.

Source: Adapted from Esther Dyson, Release 2.0: A Design for Living in the Digital Age (New York: Bantam Doubleday Dell Broadway Books, 1997).

There’s no easy, immediate answer to what is always a best practice in privacy. The capabilities to get and share data about individuals become cheaper and easier daily. Smart cards can carry not only your retinal scan and fingerprints with you everywhere but your entire medical record.20 And Intellicheck already enables bars to swipe your driver’s license to ascertain your legal age (and then, in many states, to also suddenly “know” your Social Security number, gender, weight, address, etc.).

The real commercial questions are these:

  • What do we need to “know” to serve a customer better and make him more valuable to us?
  • What information do we really need to “know” that?
  • Once we get that information, how do we balance distribution at the front lines with the need to protect a customer’s privacy?
  • What are the limits in how we will share or distribute data?
  • How will we protect and secure the data?

Summary

The fluid collaboration between enterprise and customer is ceaseless throughout the life of the relationship. But for the relationship to flourish, customers sometimes will have to reveal personal information about themselves to the enterprise. The enterprise, in turn, will have to promise to keep this private information private. Indeed, privacy—the customer’s right to it, and the enterprise’s protection of it—has become an important, and controversial, subject of the Information Age.

Food for Thought

1. Who owns a customer’s information?

  • Who should profit from it?
  • How would that work?

2. Is anonymity the best solution to privacy?

3. What is the difference between privacy and data security, and how should that difference affect the way we use customer data?

4. Compare the situation of Big Business versus Big Brother having detailed information about you.

Glossary

Cookie A small text file stored on your local hard drive that contains information that a particular Web site wants to have available during your current session (like your shopping cart), or from one session to the next. Cookies give sites persistent information for tracking and personalization.
European Union Data Protection Directive Requires EU member states to amend national legislation to guarantee individuals certain rights to protect their privacy and to control the contents of electronic databases that contain personal information. Information about consumers must be collected for specific, legitimate purposes and stored in individually identifiable form. Those collecting the data must tell the consumer, who will ultimately have access to the information, and companies wanting to use data in direct marketing must explicitly inform consumers of these plans and give them a chance to object.
Opt in When customers proactively elect to receive future communications from an enterprise.
Opt out When customers proactively elect not to receive future communications from an enterprise.
Privacy policy A written document detailing how a company will share (or not share) data collected from its customers. Ideally it should explain to customers, in simple language, what kinds of information the company needs from them, how the information will be used, how it will not be used, and the benefits a customer would gain by sharing personal information.
TRUSTe An organization that endorses each customer’s control of his own information and offers a publishable mark to groups and companies that meet TRUSTe’s requirements for privacy protection.

1. The number now circulating (on the level of urban legend) is 5,000 marketing messages daily. At the least, Forrester predicts an average of 9,000 marketing messages sent annually to the primary inbox by 2014. Shar VanBoskirk, “U.S. Interactive Marketing Forecast, 2009–2014,” Forrester Research, Inc., July 6, 2009, p. 19; available at: www.forrester.com, accessed September 1, 2010.

2. Gary Garner, “ID Theft Billion-Dollar Industry, Says Federal Trade Commission,” Mississippi Business Journal, July 21–27, 2008, p. 35.

3. Charles Jennings and Lori Fena, The Hundredth Window (New York: Free Press, 2000).

4. “Consumer Concern Rises about Online Threats, ACI Survey Shows,” American Consumer Institute’s Center for Citizen Research, September 29, 2008; available at: www.theamericanconsumer.org/2008/09/29/consumer-concern-rises-about-online-threats-aci-survey-shows/, accessed September 1, 2010.

5. Dave Frankland, “Consumer Privacy Is a Ticking Time Bomb for Customer Intelligence Executives,” Forrester Research, Inc., October 29, 2009; available at: www.forrester.com, accessed September 1, 2010.

6. Patrick Barnard, “Call Center Efficiency through Improved Customer Categorization,” TMCnet, December 31, 2009; available at: www.tmcnet.com/channels/call-center-solutions/articles/71846-call-center-efficiency-through-improved-customer-categorization.htm, accessed Sep-tember 1, 2010.

7. Amit Poddar, Jill Mosteller, and Pam Scholder Ellen, “Consumers’ Rules of Engagement in Online Information Exchanges,” Journal of Consumer Affairs 43, no. 3: 419–448, Capturing Visitor Feedback,” CyberDialogue, March 1997.

8. Kelly Shermach, “Growing Acceptance of Cookies,” Sales and Marketing Management 158, no. 7 (2006): 20.

9. “Americans’ Online Shopping Decisions Affected by Security Concerns, Poll Finds,” PR Newswire 17 (November 2009), Academic OneFile, accessed 8 March 2010.

10. Dave Frankland, “Consumer Privacy Is a Ticking Time Bomb for Customer Intelligence Executives,” Forrester Research, Inc., October 29, 2009.

11. Solveig Singleton, “Privacy and Human Rights: Comparing the United States to Europe,” CATO, December 1, 1999; available at: www.cato.org/pubs/wtpapers/991201paper.html, accessed September 1, 2010.

12. Jeff Langenderfer and Anthony D. Miyazaki, “Privacy in the Information Economy,” Journal of Consumer Affairs 43, no. 3 (Fall 2009): 380–390.

13. J. Trevor Hughes, “Greetings!” Inside 1to1 Privacy Newsletter, March 31, 2010, published by Peppers & Rogers Group and the International Association of Privacy Professionals; available at: www.privacyassociation.org/publications/2010_03_31_greetings/, accessed September 1, 2010; “Regulations Probe ‘Tagging,’ Consent,” International Association of Privacy Professionals Daily Dashboard, March 24, 2010; available at: www.privacyassociation.org/publications/2010_03_24_regulators_probe_tagging_consent/, accessed September 1, 2010.

14. “According to RILA Survey: Protecting Customer Data Is a Top Priority for Retailers,” PRNewswire, March 1, 2010, available at: www.prnewswire.com, accessed September 1, 2010.

15. Amit Poddar, Jill Mosteller, and Pam Scholder Ellen, “Consumers’ Rules of Engagement in Online Information Exchanges,” Journal of Consumer Affairs 43, no. 3 (2009): 419–448; Dan Seligman, “Too Much of a Good Thing?” Forbes, February 23, 1998, pp. 64–65; James W. Peltier and John A. Schribrowsky, “The Use of Need-Based Segmentation for Developing Segment-Specific Direct Marketing Strategies,” Journal of Direct Marketing 11, issue 4 (Autumn 1997): 53–62; Rob Yoegel, “Fulfillment on the Net,” Target Marketing 19, no. 7 (July 1996): 30–31.

16. Don Peppers and Martha Rogers, Ph.D., Rules to Break and Laws to Follow: How Your Business Can Beat the Crisis of Short-Termism (Hoboken, NJ: John Wiley & Sons, 2008), p. 91.

17. ChoiceStream press release, “Annual ChoiceStream Survey Finds Personalized Ads Attract High-Value Customers,” January 13, 2009, Cambridge, MA; available at: www.choicestream.com/news/pressrelease.asp?id=84, accessed September 1, 2010.

18. Ponemon Institute, “2008 Most Trusted Companies for Privacy: Study of U.S. Consumer Perceptions,” December 2008; available at: www.ponemon.org/research-studies-white-papers.

19. Pew Research Institute, “Use of Cloud Computing Applications and Services,” Pew Internet & American Life Project report (2008); available at: www.pewinternet.org/Reports/2008/Use-of-Cloud-Computing-Applications-and-Services.aspx?r=1, accessed September 1, 2010.

20. From Smart Card Alliance, “Smart Card Standards”; available at: www.smartcardalliance. org/pages/smart-cards-intro-standards, accessed September 1, 2010.

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