CDR: Paying for privacy

[Nomen Nescio]

Market could be huge, but consumers are a tough sell

BY DEBORAH LOHSE
Mercury News 

Dozens of new companies are betting that someday soon, Internet surfers will behave like James Bond in cyberspace.

They dream of consumers, rabidly protective of their online privacy, who use technology to obscure their online tracks from the prying eyes of corporations and marketers. When that day comes, companies like Privada Inc., Zero-Knowledge Systems, iPrivacy and Anonymizer.com. plan to be in the money. Each makes technology for Bond-like obscurity on the Web.

Good luck trying, say privacy experts, analysts and investors. While the market could indeed be as big as the $50 billion predicted by industry leader Zero-Knowledge Systems, already a handful of companies have gone under or changed their business models after trying in vain to get consumers to pay for privacy.

The hurdles are many. Consumers profess great concern over privacy but have only nebulous understanding of the risks and little inclination to change their online behavior. Giants like Symantec, Microsoft and Netscape are incorporating privacy elements into their products, including ``cookie managers'' coming in the next versions of browsers. And companies need a lot of capital to keep up with rapidly changing technology.

That means a lot of the companies vying for a piece of the privacy pie now won't survive what some see as an inevitable industry shakeout.

``There's an awful lot of start-ups that have a privacy theme. Many of them aren't going to make it,'' predicted Beth Givens, project director at the Privacy Rights Clearinghouse in San Diego.

There's no shortage of privacy technologies. Some promise to let users surf without leaving computer-identifying ``cookies'' or revealing their Internet addresses. Others allow surfers pseudonyms that are destroyed when they leave the site. Some block all Net-based advertisements -- which track whether users respond to them -- or offer encrypted addresses, decodable by the Postal Service, for purchases. And some dirty the data that marketers collect by aggregating users' profiles with others in a large group.

But the biggest hurdle to success may be consumer complacency. While every privacy company can cite statistics on consumer privacy worries, by and large consumers are also awfully enamored of the personal attention -- a la Amazon book recommendations -- that giving away their information can get them.

``We're Americans. We'll give up anything for 50 frequent flier miles,'' said Jonathan Gaw, an analyst with technology research firm IDC. When IDC asked consumers what would entice them to disclose certain information they professed to want kept secret, the number-one answer was a $100 gift certificate. ``The number two answer was a $50 gift certificate,'' he said.

That bodes poorly for many companies, especially those that expect consumers to take extra steps like downloading privacy software, registering or paying for the service, or making a stop at a privacy site.

Instead, consumers are going to demand that their basic Net tools, like browsers, automatically make selective anonymity an option.

And consumers may not even demand that until they see a few more headlines about video players tracking what they watch or computer chips identifying them by name. 

``When we see a few divorce cases or child-custody cases where lawyers are able to subpoena these files,'' said Givens, then ``people will wake up and see the danger of these large profiles.''

Most privacy-technology companies are privately held, so it's tough to see who's in the black and who's bleeding money right now. But some experts said the ones with most promise are those like Zero-Knowledge Systems or Privada, which sell their technology not just to consumers but also to businesses that want to provide privacy technology as a service to customers.

Privada's technology offers consumers greater control over how much information they give to sites. The Sunnyvale-based company recently inked a deal with American Express. An Amex spokeswoman wouldn't disclose terms of the deal, but said it will start offering protected browsing to cardholders ``soon.''

Privada used to sell directly to consumers on a test basis, but no longer does, because that ``doesn't get the privacy services where they belong, at the on-ramp to the Internet,'' said Barbara Bellissimo, a founder and vice president of Privada.

Bellissimo likens privacy technology -- which she said will one day be a standard feature of all browsers and Internet service providers -- to car air bags. When air bags first came out, ``they were optional and people paid more to have them,'' she said. But they eventually they became required features whose costs were bundled into the cost of the car.

Ultimately consumers will likewise demand the ability to easily surf unrecognized, send untraceable e-mail, and even arrange a package shipment without the marketer getting their name and address. 

The privacy game already has some casualties. A defunct company called Enonymous.com tried to build a business by rating web sites' privacy policies and storing consumers' personal data to judiciously share it with trusted partners. The company failed to attract enough consumers and business partners, noted Jason Catlett, president of privacy watchdog Junkbusters.

Persona Inc. likewise tried to help consumers leverage their personal data by getting discounts or freebies, but didn't garner enough participants. Persona now teaches companies how to request permission to use personal data and sells technology to use it.

Consumers may be wary of such ``infomediaries'' because there's no guarantee that a company supposedly keeping their personal profile under wraps is trustworthy or won't be bought out by another company with different designs. Firefly, which offered a centralized ``wallet'' for personal information to be released upon instruction by the consumer, was bought by Microsoft in 1998.

``People that trusted Firefly said, `Darn, here we thought we were giving our information to Firefly, now we've given our information to Microsoft,'J'' said Gaw. He said it gave many consumers pause for thought, ``even if we don't' think Microsoft is the evil empire.''

Contact Deborah Lohse at dlohse at sjmercury.com or (408) 271-3672