Internet Privacy Self-Regulation On Shaky Ground

According to a new report by Forrester Research, Inc., pressure from consumer advocates will force lawmakers to pursue a privacy bill of rights in 12 to 18 months.

“To avoid regulation, companies must convince the FTC that substantial progress has been made toward the fair information principles by the time it next examines the issue in March of 2000,” the report says.

It Will Not Happen

However, Forrester contends that this scenario is not going to come to pass, because the principals involved share too little common ground.

“Asking this group to reach consensus is like expecting hospital, insurers and patients to agree on managed care,” the report says.

Another reason that adequate self-regulation will not happen, according to Forrester, is that profile-driven e-commerce is creating an inherent conflict of interest with privacy.

For example, the Internet Advertising Bureau estimates that 52 percent of all online advertising dollars have a pay-for-performance component, meaning that the most financially successful ad networks are the ones that heavily use consumer profiles.

A Growing Consumer Backlash

At the same time, Forrester’s study of 10,000 North American households revealed that 67 percent of Internet users are “extremely or very concerned” about releasing data online. The study also found that 50 percent of users are ready for government regulation of privacy.

Inevitable Regulation Will Hurt E-Commerce

Forrester concludes that the industry’s failure at self-regulation will spur Congress to draft new consumer protection laws by the end of next year – a development that will adversely affect e-commerce.

“Merchants’ reputations — and revenues — will suffer,” Forrester predicts. “As consumer awareness of profiling grows, retailers will be placed under the microscope.”

Additionally, Forrester contends that regulating legislation will also have a negative impact upon offline data merchants.

“Legislation will cause a breakdown in business-as-usual for data aggregators that have been quietly selling profiles for years,” Forrester adds.

Could Have Been Avoided

Perhaps the saddest thing about Forrester’s believable gloom-and-doom scenario is that it could have all been avoided. If only greed and arrogance had not blinded industry leaders, adequate privacy safeguards would have already been firmly in place.

Instead, I’m afraid that the industry will soon suffer the consequences of being heavily regulated by the same government that is just licking its chops for more tax revenue.

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