Privacy Policies: Our Subprime Mortgages

Last week, a major new piece of legislation proposed by proposed by Reps. Rick Boucher (D-Va.) and Cliff Stearns (R-Fla.), would give consumers the right to opt out of behavioral targeting.

This legislation is hot on the heels of appeals made by senators Schumer, Bennet, Franken and Begich. Within a few hours of Facebook posting a new privacy policy, the senators asked the social networking site to provide users with a simple opt-in process to share their personal information -- instead of the complicated opt-out process that's currently in place.

These developments are not new. For the last few years, the government has been looking keenly at privacy-related matters in the realm of online advertising. In an effort to assuage the powers that be, the Internet Advertising Bureau recently ran a "Privacy Matters" campaign.

Clever, eye-catching banners directed users to a simple landing page that explained the different facets of this complex issue in a simple and lucid way. For example, one tab on the Privacy Matters microsite compared online advertising cookies to a waitress at a restaurant, saying, "She may not know your name, but she knows you want scrambled eggs, wheat toast and black coffee."



These efforts are praiseworthy. But they might not be enough to keep the government from stepping in and regulating the online advertising industry.

We can take a page from the example of the aftermath of the subprime mortgage crisis. Banks and hedge funds bundled subprime mortgages into attractive ETFs and derivatives packages. Instead of placing checks and balances on these rampaging bulls, the ratings agencies gave them gold-plated seals of approval. The industry collapsed faster than the price of a home in Florida. Strict (and much-needed) regulations followed.

If the advertising industry wants to avoid extensive oversight, then the larger players in the industry, the Lehmans and Goldman Sachs of our world, especially have to play a major role in devising responsible privacy policies that are respectful to the consumer.

Unfortunately, Facebook's privacy policies are a step backwards in this regard. The new policies released as part of its endeavor to be the center of the social web are troubling on several counts:

  • They represent a move to an opt-out process from an opt-in. As Schumer and Co. pointed out, you can't build trust with an opt-out policy. Consumers need to have control over their information and how it's being used. Taking this control away is a sure-fire means of eroding trust. Want a precedent? Take a look back ... to Facebook Beacon.
  • The new policies allow apps to retain data collected from Facebook profiles for more than 24 hours (before they were allowed to keep data for up to 24 hours). In the world of the nanosecond, 24 hours is a very long time.
  • Friends can now wittingly or unwittingly share information about you to other apps and their friends. On Facebook, a friend might be someone you have never met. Now, this person could share your personal information with someone you don't know.

It's worth noting that when Google Buzz launched, it got a lot more flak for a lot less. Google reacted to the criticism promptly and turned Buzz into an opt-in feature within a matter of days. This behavior is in keeping with a company that has a consistent track record of making anonymous user data and sharing personal information only with the explicit consent of the user.

There's innovation. And there's innovation with responsibility. The latter is slower. But it's better for the consumer and, consequently, for our industry in the long run. If the larger players don't step up to the plate and innovate responsibly, then the government will step in and impose strict regulations. And if and when that happens, there'll be no justification for finger pointing -- we'll only have ourselves to blame.

1 comment about "Privacy Policies: Our Subprime Mortgages ".
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  1. Ed Borasky, May 10, 2010 at 10:53 p.m.

    I am planning to leave Facebook because I believe their management is incompetent. You can see the details at http://meb.tw/96R9pQ

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