Yahoo: Screw Consumer Trust; We Need the Money

Companies like Yahoo (YHOO), Google (GOOG), and Facebook rely on behavioral marketing -- watching what customers do online and using that data to better target ads -- to get top rates from advertisers. So it was surprising when Yahoo said in 2008 that it would only retain data from visitors to its sites for only 3 months when its competitors kept data for 18 months. Yahoo's play was simple; it wanted to stand out from competitors, and a year-long study had showed that the change wouldn't hurt business.

Better try that study again, because Yahoo's fortunes have limped, so the company has reversed itself and will again keep data for 18 months. In a blog post, Yahoo policy executive Anne Toth pitched the change as an attempt to "put data to work for consumers." She could more accurately have said put consumers to work for Yahoo.

CEO Carol Bartz is running out of time to turn the company around, which means heavy pressure on executives to grab any opportunity to bring in cash. But there's a broader issue. Having privacy-friendly policies didn't turn into better business for the company. Does that mean that the best policy in sheer business terms is to pay no more than lip service to privacy?

Yahoo's desperation has set in because Bartz promised a U-shaped recovery just around the corner, as Kara Swisher wrote last week. The company's earnings call later today will show whether the uptick has begun or that corner is still a block or two away. Or more. Unfortunately, Yahoo doesn't have many tools at hand for jump-starting things. Look at how it now trails both Google and Facebook for unique users, according to data from Compete.com (click to enlarge):

Bartz has been in office for more than two years, and by this time in her tenure, you'd expect her efforts to be producing some serious results. Not so. Which is probably why Yahoo executives are starting to grab every chance to make more money for the company -- even short-sighted moves that could damage Yahoo's brand and operations. (Assuming there's still more to damage.)

This is why Yahoo last year decided to sell ads on its login page. It's a fire sale. Everything must go!

In 2008, Yahoo tried to distinguish itself from rivals by focusing on privacy and promising to dump data within 90 days of collecting it, but that made no difference. The company's business flopped about even as Google and Facebook continued to grow. So Yahoo decided to reinstate keeping user data for 18 months -- all the while claiming that it was still interested in security and privacy concerns. See if you can make sense of this explanation:

While these things are fundamental to us, over the past several years it's clear that the Internet has changed, our business has changed, and the competitive landscape has changed. We have been reevaluating our log file data retention policy in light of these changes and as a result of this review we are moving to align our log file data retention policy closer to the competitive norm across the industry.

Yahoo didn't seem particularly adept at turning its previous three-month policy into a competitive advantage. Is it even possible to do so? People and elected officials tend to get worked up about privacy issues, but only when things go horribly wrong. In the absence of a crisis, most people simply don't care. Look at the theft of emails from Epsilon. No one had batted an eyelash over the company because almost no one outside the direct marketing business realized just how much consumer data is sits on until someone stole it.

Even with the periodic uproars from some consumers and legislators over privacy, Google, Facebook, and others continue to mine and compile information and make more money. That's why the companies talk a lot about privacy but do next to nothing to improve it. They see no business benefit in being "good" about consumer privacy, and so don't bother.
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Image: stock.xchng user CathyK, site standard license.

Erik Sherman

Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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