Pattern Recognition, by Ian Sigalow

Thoughts on consumer privacy

Introduction

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Ian Sigalow

Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.


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Thoughts on consumer privacy

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I recently had a conversation with a friend of mine about the government’s plan to regulate the way websites track consumers online.  If you are not familiar with all the press on this topic you should read the Wall Street Journal pieces here or here.  The Wall Street Journal has been the most zealous proponent of government regulation.  This is an unusual stance for the normally conservative newspaper, and my first reaction is that regulation must benefit the WSJ somehow, although I am candidly struggling to figure it out.  In my opinion the WSJ needs online targeting every bit as much as they need paper.

Anyway, this friend of mine runs one of the companies that will be a major beneficiary if the government regulates online targeting, so he has a concerted interest in seeing legislation passed.  I, being the consumer right’s advocate that I am, genuinely think that new legislation will lead to a worse outcome for consumers than the status-quo.

The most contentious part of our discussion came down to three points (and these points were all mine – he took the opposite stance):

1.) If the government stamps out cookies, as the EU has recently tried to do, cookies will be replaced by more pernicious forms of tracking.  The advertising world is already prepared to make this change – it is not as simple as flipping a switch, but it isn’t all that complicated.  However, these new forms of tracking are more expensive than cookies, and nobody wants to undertake new costs voluntarily.  I could try to explain all the details here, but it would never pass the Ohio test.  Trust me when I say there are things more invasive than cookie tracking, including device-level identification, browser fingerprinting, and other dark areas of the Internet.  In these other systems consumers have no control over their own records.  With cookies you can always go up to the browser, hit delete, and clean everything out.

2.) The regulation of the Internet is an implied tax on consumers.  As I mentioned above there are costs associated with new tracking technology.  Some of these costs are direct, like the addition of third party data services (as well as government headcount which accompanies new regulation), and some are indirect, like lost efficiency in advertising.  In the future all advertising will be digital advertising, and all companies will bear some amount of additional cost.  These additional costs are eventually passed through to consumers in the form of higher prices.

3.) I think that most people don’t care.  We live in a time of big issues – terrorism, global warming, high unemployment.  I don’t know anyone who sits up a night worrying whether or not their online advertising is targeted.  And I am almost certain that if you survey a sample of people, and you ask them if they would willingly pay a few extra bucks every year to regulate invisible online cookies, almost all of them would say no.  I am even willing to bet that most people would go a step further, and vote for LESS security than we have today if it meant fewer passwords to remember (the worst are the sites that make you change your password – I have a dozen of those I can never remember).

Of course my friend strongly disagrees.  I would love to hear your thoughts.

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Ian Sigalow

http://sigalow.com

Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.

Comments
  • user

    AUTHOR JeffLevin

    Posted on 6:34 am March 23, 2011.
    Reply

    People will sell their souls for a “1% cash back; up to $300 per year.” Heck no they’re no going to stay awake worrying about stealthy dark cookies. The Ohio Test says: “Cookies? Peanut Butter Scotchies, please.”

  • user

    AUTHOR briancarroll

    Posted on 4:10 pm March 24, 2011.
    Reply

    The future of online retailing is price discrimination. Rich people will see high prices, poor people or loyal customers will see discounts. The ad networks will deliver traffic and label who’s who.

    In that world, customers definitely won’t want to be mis-labeled rich — so they’ll start to care *a lot* about online tracking.

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