Digital Thoughts – Privacy month for California

January should be called Privacy month for California residents. More than a few new laws came into affect dealing with consumer privacy protection and rights. One law requires businesses that own or license personal information about a California resident to implement and maintain reasonable security procedures and practices to protect the information from unauthorized access, destruction, use, modification, or disclosure. Another requires cellular phone service providers to obtain express consent from the subscriber before providing the subscriber’s name and phone number for inclusion in a directory.

As mentioned in Trends yet another law established the Consumer Protection Against Spyware Act, which prohibits an unauthorized person or entity from knowingly or willfully installing software on a consumer’s computer that would take over control of the computer, modify certain security settings, deceptively collect certain personally identifiable information, interfere with removal of certain software, or otherwise deceive the authorized user, as specified.

Another law, deals with the related topic of access to private information. California’s new “Sunshine” law is actually an Amendment to the State’s Constitution. Most people are familiar with its predecessors on the federal level – the Freedom of Information Act (1965) and the Privacy Act (1974). These laws exist to further the rights of an individual attempting to gain access to information held by the government. Sunshine laws have also been in place on the state level since the early 1980’s with California joining Florida, Louisiana, Montana, and New Hampshire in having freedom of information provisions in their constitutions.

Now the question on people’s mind, especially those outside of California, is what does all this talk of privacy have to do with our industry? The short answer is potentially a lot. The longer answer is that in doing some of the research for the Trendsarticle, I started to harp on the subject of information and disclosure. Many of the laws and much attention focuses on how governments, agencies, companies, etc. handle and disclose personal information. We see evidence of this in all of our privacy policies and terms of service. For instance, there is a lot of legal disclosure that goes along with running an incentive promotion site. What isn’t so clear, nor spelled out, is the question with how companies use information about other companies, and it is that thought that is at the center of this article.

There are companies out there that know a lot about our business practices. We go through a lot of effort to hide our metrics and any other sets of useful data that could allow a competitor to better understand our model, and with that information, potentially improve their own. Looking again at the incentive promotion space, at last count, there were at least six major incentive promotion companies. Each is relatively close to the other in the outward promotion and the price per email/zip. Imagine if you ran one of them, and you found out that your competitor had access to your media buying relationships and back end performance. How would that make you feel? While this example is not as likely to happen, there are other situations that are not too far off.

Take ad networks. They play a pivotal role in the market, and have unique access to both publishers and advertisers. They can see just which advertisers do well and on what types of inventory. I’m sure that on more than one occasion an ad network has looked at one of its partners and considered replicating their business in house. If some have, the practice doesn’t seem widespread; otherwise, I imagine we would have read about these activities from the disgruntled party. Regardless if they have though, do ad networks, for example, have an obligation to their clients to protect their intellectual property?

This is especially true for arbitragers. When distilled, arbitragers simply exploit market inefficiencies. Were markets to be more effective or to close the door by no longer remaining agnostic, the role of the arbitrager would diminish immediately. Google may make millions off search engine arbitragers, but Google also knows exactly on which ads and keywords these arbitragers bid. If Google wanted, they could open up their own affiliate arm and compete with the arbitragers. There is nothing that prevents them from doing so.

The Google scenario above is a little unlikely, but unfortunately enough, it takes place currently with other companies on a smaller scale. There are companies that play a role between inventory and advertisers who admit, although not freely, to having cut out an arbitrager to take the business directly. Nowhere in these terms do they say they won’t, as is the case with all market straddlers. The question is: Should they? Enough angry customers will eventually cripple the offending party’s reputation and ability to attract and retain clients. The downside is that for larger companies with entrenched positions, the likelihood for change will be low and slow if it occurs. The good news is that it is unlikely the companies we rely on will turn into our next competitors – it simply takes too many resources to become a good resource. The bad news is that it does exist. Business to business disclosure is for now more academic and most impacts those clever enough to exploit market inefficiencies. I wouldn’t be worried yet, but let’s put it on the radar as something that could become an issue later.