DM News 
September 11, 2000
By: Lixuan An, Yo.com

Why has privacy become such a big issue? In my opinion, it�s because since the Internet became a mass medium, our world has become a perpetual public relations spin. As a result, everything gets blown out of proportion. Let me explain.

For years now, traditional businesses work hard everyday to improve their methods of reaching a target audience. The direct marketing industry is built on fields of data about people. Other than the very few who write into the Direct Marketing Association to be de-listed, most consumers don�t bother to question these tactics, never mind opting out.

We�re used to it, and the marketers don�t make a fuss about it, they try to hit us with the right product pitches, so they make more money, and ironically provide a service to us.

Millions of consumers live it, experience it, and are either delighted with an offer, or irritated with junk mail. It�s all about relevancy. I know I don�t mind that Victoria Secret knows my bra size � you can�t get more personal than that! But they also tell me what size of Miracle Bra would work wonders on me, and I like that.

But online is a totally different world, with different rules. Online companies are judged (until now) based on their noise level. No respectable online business does things quietly, since the more buzz they generate, the more the stock market values them. E-marketers and technology companies alike have been touting their unique ability to target customers down to the individual level, hence making marketing efficient and highly effective. Is there anything wrong with this? Not really, except that during this Internet frenzy, you average consumer has become a stockholder in all these buzzed companies, and reading Industry Standards and Red Herring.

And they got worried, because they saw thousands of companies coming after them, for one purpose - to get their personal information. In a recent poll, 84% of Internet users claimed to be concerned about businesses getting their personal data, though interestingly 54% of consumers have willingly provided such data to use a web site. In addition, 24% of users give website owners false personal information in order to protect their online privacy.

All this noise helped the formation of Network Advertising Initiative (NAI), a self-regulated industry consortium of major Internet advertising companies, to act as third party monitoring of industry conduct. The NAI has set out to collectively address consumer privacy concerns and to propose a Self-Regulatory Plan for the industry, as well as to educate the public on the misconceptions regarding online privacy. Recently the Federal Trade Commission unanimously endorsed the said Self-Regulatory Plan drafted by the NAI. Even though this does not yet carry the force of law, it is good practice that you understand what the regulation means, and prepare to comply.

There are five main points to the Plan, the first two are arguably the most critical.

Notice. Network advertisers would post �clear and conspicuous notice� on host websites, i.e., those website that contain advertisements, whenever tracking is done. When the information collected may be linked with personal data, �robust� notice must be provided.

This means network advertisers will need to disclose to consumers when they are gathering profiling data as well as personally identifiable information. The �clear and conspicuous notice� will contain several components including at least: profiling activities undertaken by the network advertiser, what types of information is collected, if information will be transferred to third parties, procedures for consenting to such data use, and the length of time that the data will be held by the network advertiser.

When anonymous profiling data is combined with personally identifying information, a �robust� notice requires the �clear and conspicuous notice� of above as well as how the combined anonymous/personal profile information would be used as a result of such a merger.

Choice. Once informed about the network advertiser�s information collections practices, consumers should be able to decide whether or not to participate in profiling.

This means once notice has been posted, the choice to participate is asked of the consumer. On sites where multiple network advertising companies collect non-personally identifiable information, consumers need to be able to opt-out of profiling by any or all of the network advertisers on a single page. Consumers would need to opt-in when an e-marketer chooses to combine anonymous information with personally identifiable information. Finally, a �robust� opt-out mechanism should be available to consumers who do not want their personally identifiable information linked to profiles in the future.

Access. Network advertisers would provide reasonable access to personally identifiable information.

The NAI requires that network advertisers to provide consumers access to their personal data as well to other information that is associated with personally identifiable information. This said, the NAI believes that access could present implementation issues that require consideration before its parameters can be defined.

Security. Network advertisers shall provide a reasonable amount of security for storing data collected for profiling purposes.

Network advertisers should be subject to the same reasonable standards as all businesses that operate on the Internet.

Enforcement. Network advertisers would work with a third-party enforcement program, such as a seal program, or as an alternative, submit to independent auditors for examination.

Under the NAI principles, network advertisers have committed to monitoring and enforcement by independent third-party such as TRUSTe and BBBOnline. Non-compliance would result in the public reporting of violations or referral to the FTC.

With compliance, you can expect that many consumers will opt out of having personally identifiable information collected about them. So how will that affect your marketing initiatives, which until now have relied upon having this type of information. The good news is demographic and personal data are not the holy grail in e-marketing.

Targeting methods based on this type of information are quite limiting. Never mind the proliferation of false data, it�s ineffective because it provides no insight into an individual consumer�s unique tastes and preferences. People with the same demographics or psychographics do not necessarily like the same things. This helps to explain the low response rate both in traditional direct mail industry as well as in online marketing.

E-marketers are discovering new targeting techniques based on implicit data such as anonymous on line behavior. They are utilizing technologies such as collaborative filtering to anticipate what someone is likely to purchase based on his behavior pattern rather than on who he is.