Microsoft: Privacy Champion?

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Weave in the ability to track users' whereabouts by collecting information from their mobile phones, and privacy advocates are warning of an emerging era of hypertargeted ads that could leave consumers open to privacy abuses (see BusinessWeek.com, 4/23/07, "The Sell-Phone Revolution")

"The very idea of identity and privacy is changing really fast," says David Holtzman, chief executive officer of identity software startup Pseuds and author of the 2006 book Privacy Lost (Wiley). For one, when software is delivered as a Web service, every computer on the network over which it's delivered can be a weak link in the chain.

Loss of Anonymity

Sites that learn about a user's behavior can also present problems. Amazon.com's (AMZN) product recommendation feature stores a profile of users' tastes and interests, and credit-card companies including Capital One Financial (COF) are building psychographic profiles of consumers based on their purchases. Both approaches could capture information of users' interests that many consider private, says Holtzman, who's consulted to both companies.

The rise in popularity of social networks like Facebook and News Corp.'s (NWS) MySpace.com means some Web users are contributing to their own loss of anonymity by disclosing more information than ever about their identities and tastes. Google Street Views has given Web browsers candid close-ups of people's daily lives (see BusinessWeek.com, 6/22/07, "Google Is Watching You").

The need for tighter privacy is made all the more urgent by highly publicized cases of data loss. "If one company takes a step that looks like it protects privacy more, other companies feel the need to try to match it," says Joe Laszlo, an analyst at JupiterResearch. "If you're a company like Microsoft, Yahoo, or Google, the tradeoff has always been the more you know about the consumer, the more personalization you can give them. But you're also placing yourself in a position of trust. If you misuse that trust, consumers and regulators will come down hard on you."

Better Assessment of Web Ad Performance

Those concerns are at the crux of the policy changes at Microsoft and Google. In addition to setting time limits on its collection of private data, Microsoft on July 23 announced it's joining with Ask.com, a search engine owned by IAC/InterActive (IACI), to try to develop industry standards for data collection and online advertising. The standards could help ease consumer fears about disclosing too much personal information as Microsoft promotes new versions of its e-mail, photo gallery, and blogging software that combine data stored on users' PCs with software delivered over the Web, says Microsoft Chief Privacy Architect Jeffrey Friedberg. "This is where we focus a lot of our privacy energy," he says. "There's no such thing as a completely offline, contained product anymore."

Microsoft, too, must demonstrate privacy protection bona fides as it, like Google, pursues an acquisition aimed at garnering a bigger slice of online ads, while at the same time complaining that buying DoubleClick will give Google an unfair advantage. Microsoft is paying $6 billion for aQuantive to help it better place and measure the performance of ads (see BusinessWeek.com, 5/18/07, "Microsoft's Big Online Ad Buy"),

Pam Dixon, executive director of the World Privacy Forum, a public-interest research group, says she's pleased with some of the new policies being adopted by Microsoft and Google. Still, "these measures don't even begin to scratch the surface," she says. "We need substantive privacy protection." There's still considerable leeway for companies to assemble a lengthy dossier of information on consumers, she says. Why, for instance, do they need to retain information on servers for 18 months, she asks.

Questions like those will get plenty of air time amid ongoing scrutiny of the DoubleClick deal and other efforts by tech companies to mine customer data, and they'll keep up pressure on the industry to make consumer privacy paramount.

Ricadela is a writer for BusinessWeek.com in Silicon Valley.