Dec. 19, 2012 at 4:01 PM ET
Instagram's abrupt change of terms this week created a predictable Internet chatter bomb, as Web users erupted in anger that the firm might violate their privacy and property rights. Sadly, there is no such outrage at companies which buy and sell our privacy as their business model — and much less interest in promising efforts to rein them in.
What do they know about you and when did they buy it? The Federal Trade Commission this week joined a series of other agencies, groups, and elected officials now banging on the door of the nation's largest data collection firms, demanding to know just how much of U.S. consumers' lives are tracked by these firms.
Firms you've probably never heard of with names like Axciom, Intellius, Datalogix, and RapLeaf acquire, store, and sell hundreds of pieces of information about you to voracious marketers hungry for an advertising edge. On Tuesday, the Federal Trade Commission announced it had opened an inquiry into the business practices of those four firm and five others like them. It has issued administrative subpoenas to those firms, asking for a detailed accounting of what they know about American consumers, and what they do with it. There's big business in following you around and predicting what you might buy next, but the mysterious shroud these companies operate behind frustrates privacy advocates, who say consumers would be frustrated, too if they really knew what was going on.
"Many data brokerage companies are engaging in business practices without consumer knowledge or consent — including the collection, use, and sale of personal information about the American public," said Rep. Ed Markey, D-Massachusetts, in a statement supporting the FTC’s action.
While most fascination with the business has been with the spookiest practices — location tracking through cellphones, or Web click-path monitoring, it's important to note that firms like Axciom marry both online and offline data points. The profile data is then sold to companies that want to engage in more and more targeted marketing. That's how Target can learn that a teenager is pregnant before her father does, for example.
Earlier this year, the Federal Trade Commission issued a report criticizing the "invisibility" of the data brokers, and on Tuesday it officially joined a host of others looking into the industry: In July, Markey and Rep. Joe Barton, R-Texas, launched their own investigation into data brokers. In October, Rep. John D. Rockefeller, D-West Virginia, said he planned wanted a Congressional inquiry, too.
What makes data brokers different from other firms that know a lot about consumers, like credit report agencies?
Consumers have plenty of complaints about Equifax, Experian and TransUnion, which store and sell financial data, and play a big role in borrowers' ability to get loans (There were 30,203 complaints against them filed in 2011, the FTC’s annual report says) . But since 2001, consumers have been entitled to see what credit reporting agencies know about them, for free, and have legal rights to demand mistakes be fixed.
Data brokers operate under entirely different rules. Consumers have no right to know what data brokers know about them. Most don't even know who these companies are, let alone what information they've gathered, and what’s happening to it.
"It is appalling that these companies can still freely use personal information such as a user’s full name, home address, social security number, telephone number, and even birth date at their discretion," said Barton said in a statement after the FTC's announcement. "It is time that Congress carefully considers this industry and the potential dangers that exist."
Data brokers have repeatedly defended themselves by arguing that targeted advertising is a boon for consumers, who enjoy more relevant advertisements as the result of highly sophisticated data collection and analysis.
"The incredible growth of e-commerce — with online spending on Cyber Monday soaring to $1.46 billion this year — is strong evidence that consumers are delighted with the results of data-driven marketing," said Jerry Cerasale, executive of the Direct Marketing Association, in a statement issued after the FTC announcement. "E-commerce is exploding because responsible data-driven marketing is meeting consumers' needs."
I don't know about you, but I definitely don't remember thinking, "Hey, I think I'll buy my sister an extra present this year," because some company had stalked me around the Internet.
In fact, with all the arguing about massive data collection and privacy, I feel like I see more ads than ever that miss the mark. Case in point: I'm a musician, and recently, I shopped around online for new drums. I purchased them rather quickly. For weeks after, I felt like music stores had hijacked my computer, shoving ads for the exact drum kits I'd considered over nearly every website I visited.
The technique is called “retargeting,” and the ads are designed to follow you around the Web. I get the concept: If you are shopping for something, you are probably feeling transactional, and that's exactly when the right ad might push you over the edge and into a company's revenue stream.
Close, but no cigar, music stores. Wait a minute: it’s not close at all! Has any advertisement in history of all media been *less* effective than an ad shown to a consumer who has just purchased that very thing? Think about it: You buy a BMW, and then all TV shows you watch are interrupted with BMW ads. How dumb is that? Random ads would be much more valuable than these so-called retargeted ads.
But even retargeting barely begins to scratch the surface of data-driven advertising — it involves simple use of old-fashioned cookies. The capabilities of marketing firms to know how old we, where we live, how much we make, when we are most likely to shop, who our friends might be…the spookiness potential is endless.
We can't count on clumsiness to protect us from the potential privacy problems caused by unfettered, unregulated data collection and sale. The FTC has advised Congress to pass new laws regulating this industry, and many of the agency's proposals make sense, and deserve support as loud as the fury Instagram felt this week.
The first, and most obvious, element of the FTC's plan: Data brokers should be required to tell consumers what they know about them, for free, the same way credit bureaus now make annual disclosures to consumers.
"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," the FTC said.
Currently Axciom sells such reports to consumers for $5. What's worse, consumers have to actually mail — as in, physically mail — a personal check to the firm to pay for the report. For such a high-tech database operation, that's antagonistically old-school.
And naturally, few consumers take this option because they've never heard of Axciom — it's even less likely they've heard of smaller data brokers. So the FTC also recommends these firms be forced to create a central clearinghouse for consumers can find out about such data collection companies and make their queries in one place.
Disclosure is start, but only a start. We learned this week that only one in five consumers review their credit report each year, according to the Consumer Financial Protection Bureau — and that's with direct economic incentive to do so. Credit report mistakes cost consumers money. You can assume far fewer than 20 percent would review their data broker reports. So it's critical that Congress and the FTC go much farther than disclosure and impose tight data security standards on firms, make it easy for consumers to avoid tracking altogether. Europeans, as of this year, enjoy a "right to be forgotten" which requires companies there to scrub their systems of any digital records at a consumer's request. This option should be available, and realistic, for U.S. consumers, too.
Privacy expert Ieuan Jolly tried to take an even-handed approach when talking about the data brokerage industry this week, beginning his analysis with an "On the one hand," statement, saying that data analytics helps companies meeting consumers' needs. But "the other hand" doesn't really seem to offer much of a balanced scale. "On the other hand, few consumers know the identity of these invisible puppet masters that are collecting masses of data about them."
If they knew, they'd demand better. So I'm telling you: Instagram said it would sell your pictures, and you rioted. Data brokers, these digital puppet masters, sell your whole lives. Isn't that at least worth an e-mail to Congress?
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