In this issue: Privacy please

INTRODUCTION

Privacy issues aren't new, but they're escalating along with technological capability. Although generally undertaken to enhance broader social and economic goals like security and convenience, the cumulative effect of privacy-- defeating technologies can be personally invasive.

Are we on a trend line toward a transparent society, where everything we do is detectable? If so, do the benefits outweigh the risks? If not, can we do anything about it, or should we adopt the attitude of Sun Microsystems CEO Scott McNealy, who says, "You have zero privacy anyway. Get over it."?

Privacy advocate Evan Hendricks, editor of Privacy Times newsletter, predicts that consumer outrage over privacy issues could approach the fervor of the Civil Rights movement of the 1960s. While that might be an exaggeration, it's clear that privacy issues will be very much a part of the business, personal and public policy future. Let's examine the terrain.

IN PUBLIC PLACES

Over the past 4 years British police authorities in more than 450 cities and towns have installed surveillance cameras on major thoroughfares. The effect on crime abatement has been dramatic, both providing indisputable proof of perpetrators' identities, and in deterring many crimes that might otherwise occur. According to authorities, crime has been substantially reduced overall, not just displaced to other locations.

New York City has also used this tactic to great effect. According to the American Civil Liberties Union, there are 2,380 surveillance cameras in public places in New York. Combined with other crime-fighting techniques, the city's crime rate has dropped to a 35-year low.

Photographic records of license plates on cars using the NY/NJ Port Authority's automated toll-collection systems have been turned over to police investigating crimes. Perpetrators have been convicted with the help of such evidence. In many main California intersections, license plates of cars that run red lights are photographed, and a citation is automatically generated and mailed to the registered owner.

According to Reg Whitaker, author of The End of Privacy: How Total Surveillance Is Becoming A Reality ( 1999), next generation satellites will be capable of distinguishing objects less than a meter wide. All such surveillance technologies, like so many privacy issues, involve trade-offs. Do you rest easier knowing law-breakers are being caught and deterred, or feel uneasy at the thought of being detectable wherever you go?

AT WORK

Over 35% of firms responding to a 1997 poll by the American Management Association conduct electronic monitoring of employees (a figure we may assume has risen since). Available software products allow employers to monitor online activity of employees, including e-mail and Internet usage. Most companies don't have firm anti-surfing policies, and a good thing too: more than 45% say employee Internet use increases productivity, according to the Society for Human Resources Management (vs. less than 1% reporting a decrease).

Other new technologies allow employers to monitor employees physically. One such system uses ceiling-mounted sensors to track infrared light pulses emitted by personal ID tags. The purpose of the system is to locate people when and where they are needed, not to spy on them, but still seems intrusive to some.

Employers defend monitoring of employees as proper, legal and necessary for productivity, safety, liability reasons, efficiency, fairness and competitiveness. Privacy advocates criticize these practices as unnecessary, misguided and just plain creepy. Employers will avoid conflicts if they limit monitoring to essential activities, disclose what they're doing to employees and obtain their permission, and ensure that any and all data obtained remain confidential.

ONLINE

It's not just employers who want to know what you're doing online - it's every Internet company fighting for eyeballs and market share. As Charles Piller writes in the Los Angeles Times:

From psychographic profiles based on analyzing your Web-surfing "click stream" to precisely targeted junk e-mail, or "spam," and from "sniffer" software that captures personal information over the network to "cookie" files Web sites plant on your PC to chart your comings and goings, the industry exploits the growing transparency of Internet identities.

Does it matter your movements on the Web can be tracked? As fast as electronic commerce is growing, only a fraction of Web users buy goods or services online. Among those who don't, more than half blame security and privacy concerns, according to market research firm InfoBeads. So lack of online privacy does undermine e-commerce potential.

According to Gartner Group, companies conducting e-commerce must include three elements in their online privacy policies to build a long-term relationship with customers: They must inform consumers what information is being collected about them; state how that information will be used; and provide options for limiting consumer participation in information gathering. Consumers are more likely to give information freely about their buying habits if they receive value in return.

For example, consider the overwhelming response recently generated when a company offered free PCs and Internet service to consumers willing to share private information about themselves, have their Web movements tracked and be exposed to Internet advertising. Intending to sign up 10,000, Free-PC.com received more than a million responses. Other companies are considering following the example.

IN MARKETING

Nearly every American - from preteens to seniors - has a consumer profile in one or more company data warehouse. The reason is that virtually every big company that sells consumer products engages today in target marketing collecting personal profiles so that offers of products and services can be tailored to particular consumer needs, interests, behaviors and lifestyles. But what target marketing lacks so far is incorporation of consumer privacy choices into the new marketing equation.

This is the central message of a Louis Harris/Alan Westin national survey:

More than 8 in 10 American adults feel that they have lost control over how companies collect and use their personal information.

Four in 10 feel they have personally been victims of a consumer privacy violation.

Nearly 8 in 10 have refused to give information to a business or company because they thought it was too personal and not really needed.

Almost half of American consumers have exercised an "opt-out" of some company's information-gathering effort.

At the same time, the survey documents that American consumers remain prodigious buyers of products and services offered to them by target marketing. 61% say they purchased products or services in the past year from mail offers sent to their residence or office. By very heavy majorities, consumers say that it is acceptable for businesses they patronize -- such as banks, credit card firms, retailers and telephone companies - to look at their profiles and inform them about products and services that might be of interest to them. Public approval of this practice rises into the mid-80% level if there is a system provided for giving customers notice and an opportunity to opt-out.

AT THE STORE

According to AC-NielsenCorp., 66% of US households have at least one supermarket club card, nearly double the level of just two years ago. Consumers get a stream of instant price cuts at the checkout stand. Supermarkets get a wealth of information about buying habits they can use to target marketing efforts.

Loyalty marketing has been used to great effect for years by other industries, led by airlines' frequent-flyer programs. But privacy advocates say supermarkets are different: they sell everything from condoms to videos to alcohol, and club card holders' purchasing histories are archived. Markets say they don't share names and personal information, but acknowledge they are obligated to provide all information sought by anyone with a legal subpoena.

Loyalty marketing will continue to expand for 2 basic reasons. First, it's cheaper (and more profitable) to retain (and sell more to) good customers than to lure new customers away from competitors. Secondly, consumer tracking has allowed businesses across a wide range of industries to discover their own version of the "80/20 rule" - that the majority of their income and profits are attributable to a small minority of their best, most loyal customers. (The supermarket industry rule of thumb is that 30% of customers account for 70% to 75% of sales and profits.)

What this allows is the ability to identify and treat these best customers better: more services, more tailored products, more conveniences, etc. (It also allows the identification and jettisoning of unprofitable customers.) A cynic might call this legal discrimination; it makes eminent sense for every individual business to engage in such practices, but the cumulative effect could be a drawing of distinctions among people who may not wish to be so categorized.

AT THE DOCTOR'S OFFICE

Legislation regarding the privacy of medical records will be introduced in Congress this year, but insurers, providers and health care professionals are ambivalent about the issue. Insurers are concerned about their ability to gather relevant information; providers are concerned about costs of compliance; and doctors are concerned about access to all needed information when making health care decisions. But these concerns will pale in comparison to what will happen when the human genome is finally mapped and sequenced (that is, within 10 years). Researchers are already identifying the genes associated with a long list of diseases; it is now suspected that upwards of 80% of all disease is genetically based. What will happen when each of us is able to obtain our complete genetic profile with a simple blood test?

The federal government and many states already outlaw or restrict the use of genetic data in life and/or health insurance. But it's simply implausible that this information won't be generated and used. Millions of Americans will want to know their own health and mortality prospects, and those of their children and relatives.

The laws against the use of genetic information will be changed, or insurance companies will migrate to locales where information flows freely. They'll have to, or be swamped by applicants who know their own (probably poor) prospects while the companies would not. No one will ever be required to supply genetic information for employment or insurance purposes, but government will not be able to prevent individuals from volunteering the information to whomever they wish.

PRIVACY FROM THE GOVERNMENT

For many people the concern is not marketer, employer or insurance access to private information and activity but government access. Consider:

Proposed federal banking rules aimed at thwarting money laundering (a plan called "Know Your Customer") have generated such negative reaction from the banking industry, privacy advocates and even tough-- on-crime politicians that the proposed rules are likely to be withdrawn this month.

Although regulations are not yet in place, the 1996 Kennedy-Kassebaum law requires every American to have a "unique health identifier" recorded in a national database.

The INS is conducting a "National Worker Registry" pilot program; the Labor Department is proposing that all companies doing business with the federal government undergo routine affirmative-action audits. Is a national ID card in the works?

American companies are barred by law from exporting strong encryption software, or even from using such technology to communicate with their foreign affiliates. The government wants to remain able to easily investigate suspect activities.

GROWTH STRATEGIES IMPLICATIONS

Privacy issues raise a host of difficult questions touching on fundamental assumptions about rights, responsibilities, freedom and property. Some are old issues (individual freedom vs. the commonweal); some are new (is commercial favoritism unfair discrimination?). Privacy concerns are also paradoxical: we want privacy for ourselves but demand information about others - child care workers, new neighbors, employees, co-workers, policy applicants, doctors with malpractice judgments, politicians with questionable pasts, etc.

Hard to say where it's all going - somewhere between a privacy revolt and a meek acceptance - but privacy represents a range of trends and issues that bear close watching whatever your business, industry or field of endeavor.