Legislating privacy may hurt bottom line

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by Patrick Thibodeau

(IDG) -- Privacy regulation has the potential to raise a company's marketing and IT costs, said industry groups and end users who are preparing to challenge the growing push for privacy laws in Congress by outlining the economic consequences.

For instance, the New York-based Information Services Executive Council, in a study that hasn't yet been released, said a preliminary estimate of the impact of a variety of opt-in requirements on catalog and Internet apparel retailers shows that such a requirement could add $1 billion in costs to a $15 billion industry. That's because consumers are less likely to opt in -- that is, check a box to say they agree to the sharing of personal data with third parties for marketing purposes -- than they are to opt out when given the opportunity to forbid the sharing of that information.

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And the loss of that data would be a blow to companies' efforts to establish databases of marketing information, said Michael Turner, the council's director. Those firms would face higher costs as they try to compensate for the data loss.

By better targeting customers, "I can be more efficient marketingwise, and that is going to lower my cost, and I can pass those cost savings to consumers," said Peter McGonagle, a senior vice president at Cendant Corp., a New York-based conglomerate that runs businesses ranging from hotels to financial services firms.

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When privacy regulations are applied to IT systems, specific privacy rules are "very akin to the accounting world," said Andy Martin, former chief technology officer at Austin, Texas-based Garden.com Inc., which sold its assets to Wal-Mart Stores Inc. subsidiary Walmart.com and Warminster, Pa.-based Burpee Holding Co. "Everything has to be strictly audited, and that's where I think the IT effect can be."

The economic impact of privacy hasn't gotten enough attention from regulators, said Federal Trade Commissioner Orson Swindle, a Republican who said he disagrees with the approach the Federal Trade Commission (FTC) took toward privacy during the Clinton administration. The FTC's recommendation to Congress last year for privacy regulation made "a rather burdensome [online privacy] regulatory regime without any kind of a cost-benefit analysis," he said.

"We argued that self-regulation was not working when, in fact, all the facts indicated that it is working," he said.

The FTC might see a shift in its approach to online privacy when the term of Chairman Richard Pitofsky ends in September. Pitofsky is one of three Democrats on the five-member FTC board, and President Bush is expected to appoint a Republican, creating a Republican majority that would be more inclined toward promoting self-regulation.

Many privacy groups argue that there's a lack of economic data to show that adopting an opt-in standard would be burdensome to businesses.

"Right now I think the case can be made that companies are losing business because of lack of trust, and it seems right now any way to help trust will help business," said Ari Schwartz, a policy analyst at the Center for Democracy and Technology in Washington.

The opt-in debate

Companies contend that many consumers wouldn't opt in if given the option.

Industry View: If shoppers make it more difficult for companies to share data, costs will increase.

Privacy Advocates' View: Privacy is preferred, but there's no consensus on whether "opt-in" should be required in all cases.

Privacy group warns of e-mail wiretap
February 5, 2001
Consortium proposes new privacy guidelines
February 2, 2001
Consumer group: Online privacy protections fall short
January 26, 2001
States to weigh in on Net privacy rules
January 25, 2001
U.S. beats Europe in online privacy protection, study finds
January 25, 2001

FTC to focus on consumer profiling at privacy workshop
(Computerworld)
Lawmakers to eye 'Web bugs' at upcoming hearing
(Computerworld)
Personalization trade group proposes privacy guidelines
(Computerworld)
FTC, Commerce Department seek feedback on digital signatures law
(Computerworld)
Groups seek to protect anonymous Net posters
(IDG.net)
JavaScript spy creates an e-mail wiretap
(Network World Fusion)
Tech groups hope for a do-nothing Congress
(The Industry Standard)
Consumer group: Online privacy protections fall short
(Computerworld)

Federal Trade Commission (FTC)
Information Services Executive Council

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