Why the New Privacy Laws are Actually Good for Business
The privacy bill introduced introduced this week by Congress is an attempt to address an enormous area of economic activity that has, until now, gone almost entirely unregulated. The legislation -- still in draft form -- has been criticized by business interests as too strict and by privacy advocates as too weak. In fact the legislation is smart and judicious, a pro-business package that will leave the final decision about online privacy in the hands of the consumer.
First it's important to understand that this kind of information exchange underpins the majority of commerce on the Web. When users visit a site, it's typically running a service, like Google (GOOG) Analytics, that's collecting their personal information for the site's owner. Facebook users who "Like" certain songs or movies are providing personal data to Facebook that it sells to third parties. And at the most basic level, every click you make is potential revenue for your Internet service provider, many of whom sell this information to marketing and analytical firms. Studies show that people live in a state of blissful ignorance about these transactions. The majority believe that companies aren't selling their information without their permission, and would be upset if they were. The result, as my colleague Erik Sherman pointed out, is an unproductive cycle in which business is largely governed by shame. Firms expands their information gathering quietly, burying the detail of its resale in the fine print of user agreements few people bother to read. This is inevitably followed by public outcry, like Facebook's Beacon project in 2008, or Charter cable's attempt at behavioral tracking, after which companies are forced to backtrack, wasting time and money.
The new bill will do a lot to eliminate this guesswork. Companies are free to collect any information they wish so long as they display the specifics in a privacy policy on their website. Certain sensitive information -- medical records, race, sexual orientation -- has been placed in a special opt-in category. But the bill favors business by making most information, including data shared with third party advertising networks, opt-out only.
Essentially, the bill means never having to say you're sorry again. Companies can move forward with more aggressive information collection and sale so long as they follow these rules. The worry for business, of course, is that the majority of people will opt-out of sharing their information. But a quick look at the way the Web is developing shows that won't be the case.
While privacy issues draw a lot of attention from reporters and politicians, they rarely have a negative impact on business. Facebook, which has one of the worst records on privacy, is the world's largest and fastest growing social network. Users want the comfort of knowing they can control their privacy, and a new set of law from the government will add that confidence. But most people don't go beyond that. As the NYT put it, "Privacy advocates said they were disappointed that this approach relied on a privacy policy, which few site visitors actually read."
