AOL's inadvertent release of search data on more than 650,000 customers is a stark reminder that online privacy has a price. Underestimating its value, after all, cost the job of AOL's chief technology officer, according to an Aug. 21 company e-mail. Other employees were also dismissed, according to press reports.
Privacy advocates argue that Internet users place a high premium on their personal information. In complaints to the Federal Trade Commission, representatives from the Electronic Frontier Foundation and the World Privacy Forum (WPF) maintain that many, if not most, computer users would not knowingly use Internet services that store and release potentially revealing search data to the general public, advertisers, or other third parties.
EASY TARGETS. WPF Executive Director Pam Dixon puts it this way: "People are enormously creative and come to these search engines with their deepest darkest thoughts and secrets, some of which are perfectly legal and should be protected. They type in things they wouldn't tell their best friend."
True as that may be, some Internet companies and advertisers say computer users are willing to trade a large measure of their private data for the personalized service and access that searching on the Internet provides. "It is quid pro quo for free content and free entertainment," says Dave Morgan, founder and chairman of TACODA, a New York company that provides targeted online advertising, including on sites such as NYTimes.com and BusinessWeek.com. "That is certainly the position that the publishers and content providers have created, and that is the expectation that has already been created with consumers."
Morgan says advertisers and companies do need to be careful not to reveal identifying information about computer users they track. But some form of tracking is nonetheless a necessary component of an increasingly advertiser-supported Internet. Targeted advertising, which delivers ads based on users' Web surfing and search habits, is the lifeblood of Google (GOOG), Yahoo! (YHOO), and other major online media companies.
INEVITABLE. In 2006, such targeted advertising brought in $1.2 billion in sales and is likely to surpass $2 billion by 2008, according to eMarketer. "A range of factors support a move to online ad targeting," writes eMarketer Senior Analyst David Hallerman in a report. "These reasons include reaching an increasingly fragmented audience, reducing wasted impressions (especially with the greater use of more expensive online video ads), and improving relevance for a campaign."
Lance Podell, CEO of Seevast, a company that manages targeted advertising services Pulse 360 and Kanoodle, says computer users often value instantaneous information more than their own privacy. "We make these tradeoffs," he says. "I might not like that [a search engine] may know that somebody in my family has cancer, I may find that uncomfortable. But, at the same time, I like that I can find more information to potentially cure cancer that I didn't know before.…The consumer keeps recognizing over time the value of breaking that barrier."
The backlash against AOL is likely to be short-lived, Podell says. Consumers will continue to provide information to advertisers in order to get what they want, when they want it—provided that the information doesn't threaten the integrity of Social Security Numbers, bank accounts, and other key identifying information. "I think that we will continue to see, over time, the gradual acceptance of consumers to this because we ask the Web to do more and more for us," he says. "It is inevitable that we will continue to move down this road, not off it."
ISSUE OF TRUST. The major search engines and content providers are also banking that consumers will continue to sacrifice privacy. While many search engines, including Yahoo and Google, were quick to reaffirm a commitment to safeguarding users' information, none is pledging to cease, or significantly limit, the collection and storage of user data. Google, for example, clarified that it does not provide advertisers "insight into the actual query that was conducted." However, Google spokesman Steve Langdon, also reaffirmed that the vast data collection on user searches is integral to Google's business.
In response to a question about whether the company believed consumers would sacrifice search targeting capability for more privacy, Langdon writes: "There is a great value in the data we collect and we harness it for the benefit of users. Ultimately users decide whether they are comfortable with products and services and the companies that offer them."
Time Warner's AOL (TWX) was confident enough in the value users place on its service to apologize without also promising to limit data collection or storage. It did, however, ask a task force to evaluate how long it should save data and how to restrict outside access to databases containing sensitive information. "There is a tremendous responsibility that goes along with our mission of serving consumers online," wrote AOL Chief Executive Jonathan Miller. "We have to earn their trust each and every day and with each and every action we take."
BIG BROTHER. The fact that AOL apologized at all, let alone announced the resignation of a higher up, shows that it does realize that collected data is worth something to users. AOL and others know that users are concerned about the possibility that hackers will obtain, misuse, and expose their personal information. They are also aware that computer users are concerned about the government's interest in stored data.
Yahoo was taken to task by Amnesty International and others, for example, after news reports revealed the company handed over information on dissidents to the Chinese government (see BusinessWeek.com, 5/25/06, "Amnesty Intl. Sees Red over Yahoo China"). And the Electronic Frontier Foundation and others have raised awareness about how the Bush Administration could use Internet search data to eavesdrop on computer users' online activities (see BusinessWeek.com, 8/18/06, "Wiretap Ruling Threatens Telecoms"). Representative Ed Markey, a Massachusetts Democrat, even introduced a bill to limit the "warehousing of consumer Internet data" after Google was ordered by the Justice Dept. to turn over search records. The company refused.
Still, barring an unlikely law explicitly limiting the use of data, the privacy policies of Internet companies are unlikely to change without a public uproar about the availability and use of data. Even Dixon, who believes that companies could compete on the basis of who secures data best, says it is unlikely that they will react that way unless consumers stop using services that invade their privacy. She notes, "the competition in this area is so fierce, and I think that when you have such intensive competition in such a hot area of business, it is very challenging for companies to set standards that are the most appropriately consumer protective."
Holahan is a writer for BusinessWeek.com in New York
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