WASHINGTON, DC - FEBRUARY 23: National Economic Council Director Gene Sperling
Apple, Google, Yahoo, Facebook and Amazon.com (AMZN) may stop invading our privacy, now that the Obama administration is on the case.
Just last month, President Obama stepped into the privacy battle between the consumers and giant corporations by introducing a Consumer Privacy Bill of Rights.
"These rights give consumers clear guidance on what they should expect from those who handle their personal information, and set expectations for companies that use personal data," wrote Obama in prepared remarks introducing the bill. "I call on these companies to begin immediately working with privacy advocates, consumer protection enforcement agencies, and others to implement these principles in enforceable codes of conduct.” (See Obama’s Privacy Plan Puts Pinch On Google.)
On Monday, the Federal Trade Commission (FTC) followed up with a detailed report titled, "Protecting Consumer Privacy in an Era of Rapid Change: Recommendations for Business and Policy Makers." In addition to the common privacy issues, the report also covers peripheral issues such as those described in "Be Prepared To Sell Your Soul If You Use Google."
Apple had been collecting geolocation data and storing such data on consumer’s devices. With all of its technical expertise, Apple did not even bother to encrypt that information. Google and others extracted such information from Apple computers and devices without the knowledge of the consumers.
Photo-sharing app Path faced widespread criticism for uploading iPhone address books without consumers consent.
Do companies need to retain data that is not specifically tied to the business purpose of their interaction with consumers? Does an app that tracks stock quotes need to collect information on the location of the user?
For example, a consumer can use a mobile application on her cell phone to “check in” at a restaurant for the purpose of finding and connecting with friends who are nearby. The same consumer might not expect the application provider to retain a history of restaurants she visited over time.
If the application provider were to share that information with third parties, it could reveal a predictive pattern of the consumer’s movements thereby exposing the consumer to a risk of harm such as stalking. Taken together, the principles of reasonable collection limitation and disposal periods help to minimize the risk that information collected from or about consumers could be used in harmful or unexpected ways.
The foregoing are examples used by FTC to illustrate the need for a privacy law.
As I have written before, corporations have the money to engage high priced influential lobbyists. There is no question that the lobbyists will attempt to water down any recommendations from the Obama administration. None the less, the 112-page report from the FTC is encouraging. The report does a good job of setting up basic principles that congress should consider in formulating a law on this subject.
As I read the report, I found a pleasant surprise. The report also zeros in on information brokers. Here is the FTC conclusion on information brokers:
To address the invisibility of, and consumers’ lack of control over, data brokers’ collection and use of consumer information, the Commission supports targeted legislation – similar to that contained in several of the data security bills introduced in the 112th Congress – that would provide consumers with access to information about them held by a data broker.365 To further increase transparency, the Commission calls on data brokers that compile data for marketing purposes to explore creating a centralized website where data brokers could (1) identify themselves to consumers and describe how they collect and use consumer data and (2) detail the access rights and other choices they provide with respect to the consumer data they maintain.
Just like consumers are able to get their credit report and are able to correct mistakes, consumers should be able to get reports on the data that various companies have gathered on them and be able to correct data that are wrong.
If the end result of this initiative is a limitation on data mining and consumer tracking, from an investment perspective it would be negative for data brokers such as Acxiom (ACXM).
About Me: I am an engineer and nuclear physicist by background. I have founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Please feel free to write me at Nigam@TheAroraReport.com. Follow me here and get email notification when I publish a new article.
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