Nick Szabo -- Privacy Marketing

Privacy Marketing

Most Internet businesses, especially the Web software and payment systems providers, are severely underestimating the market for privacy features that is out there. Consider:

A recent general survey showed that 83% of Americans are very concerned about their privacy on the "Information Superhighway". One can expect even stronger figures from European customers, which have more first-hand experience with private data, much of it originally compiled for innocuous reasons, being used for political repression. The vast majority of our customers are concerned about privacy.
Marketing surveys on privacy that are both detailed and accurate are hard to come by, because customers who care more about their privacy tend to dislike filling out detailed forms (even if they claim to be anonymous).
Over half the BBS, and potentially the Internet, online service market is in controversial services, where customers are even more concerned about privacy than average.
Privacy, once considered merely a political issue, is now being recognized for its more important aspect, as a market differentiator and value-add. Marketers correctly recognize that government "privacy regulations" mean much less privacy for businesses if it is to be enforced, and the voters no longer expect such laws to have any teeth in the face of modern technology. That hardly means that customers are not concerned about it, as the numbers show.
The alternative to regulation is market solutions. Recognize that many customers do want privacy, give them what they want, and contrast yourself to your competitor. Making visible the ways your competitor is violating their customers' privacy will become a powerful marketing strategy. This strategy was used rather timidly, and inaccurately, by AT&T against MCI. (Inaccurate because all major phone companies compile lists of who calls whom, and use them for marketing as well as billing -- MCI was simply being more honest about it). Nevertheless, AT&T succeeded in causing MCI's marketers to modify their "Friends and Family" campaign by portraying them as creepy snoops. Used boldly and accurately, privacy marketing has vast potential to upset competitors who rely too much on identified marketing data and not enough on empathy with the human customer. For an idea of what such a marketing campaign might be like, imagine combining Apple "1984" Mac ads, one of the most effective campaigns in history, with the AT&T vs. MCI campaign, to sell products and services that in fact do protect customer privacy where the competition does not.
Most Americans do not participate in frequent flier and similar customer tracking programs. Many who do participate don't realize the extent to which their lifestyle is tracked, since these actions are performed on remote databases, well hidden from the customer. If customers aren't concerned about their privacy, then why the need for all the distracting gimmicks and giveaways? Why not just promote these programs straightforwardly to the customer as "Customer Tracking Programs"? A competitor who can provide a privacy protecting solution can do just that, damaging these tracking programs severely.
Cash transactions, which leave no identified paper trail, provide a large degree of practical privacy. They prevent detailed compilation of lifestyle habits, by (a) not depending on identity to settle the transaction, (b) making identity tracking, where it occurs, a visible, separate process, and (c) making it too expensive to track identity via the payment system itself, except in extreme, very rare cases. In practice, this means that cash customers don't get their lifestyles described in detail in remote databases, while non-confidential electronic payers increasingly do. Eventually this sharp difference in outcome will feed back to the customer, greatly increasing the demand for cash over non-confidential electronic payment. Beware of pseudo-"cash" systems such as "Cybercash" which do not provide the crucial privacy functionality of cash.

The Feedback Effect

Subjects of information gathering tend not to respond to privacy degradation until they get feedback on its occurrence. Thus little objection is raised to to mailing lists until junk mail arrives. Objection to private data in the hands of remote, hidden credit bureaus and investigators is rare, but objection is great when this is information is distributed widely enough that the subjects themselves become aware of the breach. This occurred, for example, with the Lotus Marketplace CD-ROMs, which distributed information that had been avaiable in the marketing and investigation communities for years, but never previously available to most of the subjects. On the Internet, Netscape removed the REMOTE_USER field, which gave out the e-mail address of the browser user, when Web marketers started sending junk e-mail to these addresses. The task of a privacy marketer is to create feedback situations that shed light on the privacy degrading activities of their competitors. Make the customer viscerally aware of the remote, hidden actions of competitors which are not in the customers' best interests. Be prepared to enhance the market impact of competitors' privacy breaches that are already public. Make sure one's own company's products and services have been planned with end customer privacy in mind. This reduces vulnerability to a privacy marketing campaign by a competitor, and lets the company take advantage of its competitors' privacy breaches by contrasting its own offerings.

Gathering Marketing Data

can be a valuable enterprise, but violating privacy in the process of gathering this data is self-defeating. The most successful user tracking operation on the Internet, Firefly, prompts users to enter an alias instead of identifying information. This makes shoppers comfortable enough to proceed with giving out very detailed information on their personal preferences, in this case their musical tastes. Shoppers are also rewarded with the recommendations of new pieces of music by other nyms with tastes most similar to their own. A remaining challenge is to convince shoppers that their browsing alias will not be linked to their shipping information, which with the current mail-order business methodology must necessarily contain identifying information. The browsing and ordering stages for mail order should be completely separated -- separate browsing sessions with separate cookies at the very least; better still completely separate web sites.

A big challenge for vendors value-adding privacy is to accurately communicate these privacy features, through both the user interface and their marketing, while debunking fraudulent claims (such as calling non-confidential payment systems "cash") and exposing the privacy violating actions of their competitors.

The Instinct Gap

Maintaining a sphere of privacy is instinctive when it comes to hearth and home. What goes on behind closed curtains is not, for the most part, for public consumption; we feel this in our gut. Our instincts don't achieve the same function in an electronic world. Imagine the following two different scenarios:

A stranger rooting through your home, your living room, your bedroom, your closets, etc., making a list of most of the things you own. How would this make you feel?

Your credit card company and bank selling and analyzing lists of most of the things you've ever bought.

Why do these two scenarios make most of us feel differently? Is this rational? Eventually cultural evolution, which operates much more quickly than genetic evolution, will catch up -- and presumably the same privacy protecting emotions will emerge in an ideological form. Until then, only a minority will protect their electronic privacy with the same furvor with which they protect the sanctity of their homes.

Conclusion

Privacy marketing will be an important value-add for marketing, particularly for Internet commerce where privacy concerns play a major role in slowing the growth of paid transactions and in making the ability to gather accurate usage statistics poorer than expected. Privacy marketing will be a terrific way to gain market share at the expense of the competition -- or to lose much of your market share, if you find yourself on the wrong end of a privacy campaign.

Please send your comments to