Net’s Bitter Privacy Pill Is Good Medicine

Monday’s news that the U.S. Federal Trade Commission (FTC) wants Congress to pass tough new online privacy laws sent shock waves through the e-commerce world that are still reverberating days later.

Internet companies were already hard at work on their own privacy guidelines and hoped to avoid any moves by the government to shove onerous regulations down their throats. With the recent formation of a broad coalition of Web companies dedicated to addressing privacy standards and self-regulation, many e-tailers felt they had time to get their houses in order.

But word of the FTC’s backpedaling from its longtime position in support of self-regulation should not come as such a shock. Like other forms of government regulation — for example, sales taxes — privacy oversight is all but inevitable. And while it may be a bitter pill to swallow and may cost some serious money, it will also make the Internet a stronger medium for conducting all kinds of business.

Government Intervention Required?

I am vehemently against almost all forms of government interference in the Internet, which grew into the powerhouse that it is largely because it was unfettered by restrictions, legislation, taxation and nitpicking. But the fact is that without a broad, easy to find, easy to comprehend, and easy to adopt uniform standard, privacy will continue to be a bugaboo for the Net.

Failure to protect the public’s privacy rights online can potentially do much more harm than even the strictest solutions.

Privacy, in its many forms, has been a controversial issue since the earliest days of the Internet, but the scramble by U.S. officials to do something about it is a fairly recent development. The problem with government intervention coming this late in the game is that imposing tough new standards now could create serious hardships for many Internet companies.

Many firms legitimately use their Web sites to capture customer information that is highly valuable for honing and refining their marketing efforts, and the vast majority of them already have well developed guidelines and expensive privacy software in place.

A Jungle of Policies

Nevertheless, government regulators have identified serious and legitimate problems. As things now stand, consumers must contend with vastly different privacy policies at the Web sites they visit. Some consumers might be surprised to learn that many sites track their surfing patterns and share that information, in aggregate form, with other companies.

Other sites pose more serious concerns. Some do not even have security features ensuring that credit card numbers cannot be viewed by third parties during online transactions. Too often, a site’s privacy rules consist of long paragraphs of fine print contained in a file hidden behind a link stashed at the bottom of a page where many surfers never even venture.

No Pain, No Gain

There will be suffering if Congress sets reasonably high standards and demands that all companies meet them by, say, 2004. Current platforms, software and back-end systems will have to be reworked or scrapped. Millions invested in marketing and data collection programs may be wasted.

But imagine the Internet after the pain stops. With increased confidence in the protection of their privacy rights and privileges — even over handheld, wireless devices — more consumers would make the e-commerce leap.

The benefits could be substantial. Privacy and security concerns remain a substantial obstacle to overcome before e-commerce can claim its share of the overall consumer economy. Putting privacy concerns to rest with a single act could do more to lower that hurdle than all the best efforts of Internet companies to blend their existing platforms.

Be Quiet and Take Your Medicine

I am aware of the slippery slope argument, most recently invoked by the president of the Information Technology Association of America (ITAA) and Republicans in the U.S. Congress. If you let the government regulate one aspect of the Web, this reasoning says, it will soon be meddling in every corner, obfuscating International borders and undermining the boundless nature of the Internet.

But the FTC is armed with evidence that self-regulation is taking too long, that consumers are having trouble finding and understanding privacy policies and that Internet sites have adopted standards that are all over the map. Given the potential benefits, this is one time when it might okay to let Big Brother come in and set some rules. Then we can get on with the game.

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