How Worried Are Consumers about Privacy?

he need to protect consumer privacy online has been in the spotlight lately, more than ever. In February the U.S. Senate created a new Judiciary Subcommittee on Privacy, Technology and the Law, which will be chaired by Sen. Al Franken, D-Minn. AdWeek quoted Franken saying, “The boom of new technologies over the last several years has made it easier to keep in touch with family, organize a community and start a business. It has also put an unprecedented amount of personal informationinto the hands of large companies that are unknown and unaccountable to theAmerican public.”

This has been fueled in large part by the scrutiny of Facebook. A Wall Street Journal piece in October 2010 provided details about the controversy, which stemmed from concerns that application developers were gathering information about Facebook users – and their friends – then selling that information to advertisers.

While concerns about consumer privacy are justified and need to be examined (and possibly legislated) in the age of social media, the current frenzy may be blown out of proportion. We need to ask ourselves whether consumers are truly worried about guarding their information. And if so, what are the conditions under which they are willing to provide personal information? Finally, don’t they feel differently depending on what information is being tracked?

A review of the experience of the past few decades with traditional customer loyalty programs provides some important insights. As it turns out, consumers will willingly render personal information under the right circumstances. Consider the following examples:

· Grocery and department store “preferred shopper” cards have been widely accepted and used in exchange for relevant deals, discounts and information.

· Frequent flier programs and credit card companies provide points toward flights, trips, points for shopping and more in exchange for personal information that is widely known to be sold to third parties.

· “Nielsen families” have willingly given out information about their TV viewing habits for more than 60 years.

Even online, consumers have embraced the benefits that come from providing personal information. Amazon.com and Netflix recommendations are extremely popular. They generate recommendations for consumers based on their past purchases and other demographic information. Consumers enjoy this convenience and view the recommendations as discovery tools that enhance their online shopping experiences. These recommendations are made possible only through access to personal information. Furthermore, looking at social networks, millions of consumers are publishing large amounts of personal information openly to the masses.

The problems with privacy begin when companies gather sensitive personal information of which consumers are protective. For example, even though consumers have reacted positively to Netflix’s recommendation engine, one woman sued the company (Doe vs. Netflix) because it was collecting information that revealed her sexual preference. When companies gather information about more sensitive preferences, such as adult entertainment, financial services or health, consumers put their guard up.

Even so, consumers are fairly tolerant of providing even highly personal information as long as they authorize it. I put these authorization rules into three categories, which have been respected by the traditional approaches to leveraging personal information. Consumers must be able to protect their privacy by:

1. Authorizing companies to gather their information

2. Understanding how the company will use their information

3. Retaining the ability to opt out

The lesson? Consumers simply want control of their personal information. In essence, they want access topersonalized content, but they also want to retain control so they can make the provider “forget” the action. You’ll readily spot this in all of the opt-out offers when you buy something online.

Of course, personalization isn’t going away. On the contrary, it’s here to stay, and it’s only going to become more sophisticated. Consumers, too, will become more savvy as they learn how to control access to their personal information. The industry simply needs to abide by a few tried and true ground rules that provide peace of mind and comfort to consumers. This requires transparency to the process and control of what data is being collected and how it is being used.

If this is all as harmless and easy to fix as I seem to imply, why all the controversy? Very simply, it’s because many online companies today have extended their practices way beyond consumers’ tolerance levels using data targeting in what I call “taboo areas of interest” and making transparency very difficult. Industry guidelines should be set in collaboration with consumer advocacy groups and Washington D.C. to protect the emerging fields of new media and e-commerce, while at the same time being respectful of the rare instances in which consumers want to be left alone.

Habib Kairouz is the managing partner of Rho Ventures.