Amazon: Caught Between a Rock and a Hard Place

Reports earlier this week that online powerhouse Amazon.com is being sued by individual consumers as well as being investigated by the U.S. Federal Trade Commission (FTC) for privacy issues are the culmination of suspicions that have been coming to a boil since late last year.

Late Monday, Amazon.com revealed that the FTC is investigating its Alexa subsidiary in an informal inquiry. In a filing with the Securities and Exchange Commission (SEC), Amazon.com said that the FTC has requested that Alexa “provide information about its practices, and submit various materials and documents.”

The FTC shifted into action once two lawsuits were filed alleging that Alexa illegally intercepted personal data and electronic communications and passed that information along to Amazon.com and other parties. The pending lawsuits seek class-action status, according to Amazon.com’s filing.

One of the suits specifically states that the consumer was not told that personal information would be collected when the Alexa software was used. So far, Amazon executives are particularly tight-lipped about the widely publicized conflict, except to issue a terse denial of all charges.

Software Tracks Every Move

Alexa software monitors the sites that a consumer visits, looks for patterns shared by many individual shoppers, aggregates information about the collective navigation of Web users and makes specific suggestions to its customers that may enhance their buying abilities. The software continually learns about online shopping behavior and builds on the information to improve the quality of information it makes available to consumers.

Late last year, online security expert Richard M. Smith — who works to uncover illegal e-commerce activity and online schemes — filed a formal complaint with the FTC regarding Alexa’s business practices. Smith contended that Alexa software was passing personal data about online consumers that Amazon.com never tells its customers is being collected or used.

Information gathered by the software allegedly includes, but is not limited to, names, addresses, phone numbers and e-mail addresses. Alexa software is also used by Amazon.com’s zBubbles, a program that works with browsers to direct users to specific merchandise and bargains on Amazon as they shop on the Web.

The program has been used by Amazon since the middle of last year.

While Smith’s allegations made headlines last year, the FTC did not take aggressive action regarding Amazon’s use of Alexa software until this week.

Embarrassing Lawsuits and FTC Investigation

Bill Curry, a spokesman for Amazon, said that the company was responding to the FTC’s requests and that “nobody is more concerned about privacy than Alexa and Amazon.”

Amazon, however, is now caught between the pincers of the FTC and class action attorneys, both of whom will likely squeeze numerous concessions out of the embarrassed Amazon.

It almost does not matter at this point whether Amazon is guilty or not. The charges are the equivalent of an individual being charged with child abuse. Amazon cannot win at this point. It can only contain the losses.

Catalyst for Tough Consumer Privacy Laws

Regardless of how Amazon.com resolves the matter, this case will also likely contribute to the enactment of stringent privacy laws associated with monitoring online e-commerce behavior — particularly since the Alexa software followed consumers as they shopped, rather than monitored behavior while on a specific site.

Already, U.S. Congressman Edward Markey (D-Massachusetts) has announced plans to introduce Internet privacy legislation in the coming weeks. Under Markey’s proposed measure, e-tailers would be required to notify consumers if information is being gathered and to also notify them if the information will be used for other purposes than originally intended.

Additionally, if Markey’s bill is passed, consumers would have the right to stop the use of such information, and companies that violate the law would be subject to legal sanctions.

The bottom line here is that there is a whiff of smoke around Amazon’s Alexa subsidiary and the FTC and class action attorneys are screaming fire. Regardless of the truth, expect an embarrassing settlement from Amazon and some tough new consumer online privacy laws.

What do you think? Let’s talk about it.