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FTC tackles online privacy
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June 3, 1998: 3:36 p.m. ET
Electronic commerce companies will take note of the government's report
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NEW YORK (CNNfn) - When the Federal Trade Commission presents its report on online privacy to Congress Thursday, electronic commerce companies will be paying close attention.
The report is expected to condemn Internet companies for not doing enough to guarantee consumer privacy.
The FTC surveyed approximately 1,200 Web sites as part of its year-long study. Such information as credit card numbers, medical records and addresses aren't adequately protected, the FTC is expected to say.
The Clinton administration has taken a hands-off approach to Internet regulation, preferring to let the industry police itself.
Making purchases online is still a relatively new phenomenon, and consumers have expressed fears over sending such sensitive information as credit-card numbers over the Internet.
But aside from consumer confidence, there are real business issues at stake for companies that survive solely on e-commerce.
Established players are safe
Some e-commerce companies have been the darlings of investors riding the Internet wave.
Analysts agree that established e-commerce players, such as Amazon.com Inc. (AMZN) and CDNow Inc. (CDNW), have the least to fear from the FTC's findings, largely because they have addressed privacy concerns from the beginning.
Amazon.com in particular is one of the major players in the high-flying Internet sector. The company had been trading in the $90 range before offering a two-for-one stock split in April.
"The success of Amazon would suggest their customers aren't that afraid of buying online," said Lise Buyer, a technology analyst at Deutsche Morgan Grenfell.
The real problem, according to Kate Delhagen, e-commerce analyst at Forrester Research, are companies that sell personal information to others without informing consumers.
"The bottom line is that some companies are doing the right thing and a lot are not," Delhagen said.
The cookie monster
E-commerce companies rely on gathering personal data from their customers, both for providing better service and for attracting advertisers.
One of the ways companies get this information is through "cookies." Cookies are largely benign and actually helpful to Web surfers.
If you regularly visit a site that requires a log-in ID and password, for example, a cookie will let you save that information on your hard drive so you don't have to type it in every time you visit the site.
Some Web sites ask users if they want to accept a cookie before proceeding. Sometimes you'll have to fill out information such as your name and your interests.
More often than not, however, users don't realize they've accepted a cookie.
Though many consumers consider cookies an insidious example of invasion of privacy, Internet companies say it helps them provide more personalized service to their customers.
"I think some consumers will scoff at the report because they like the fact that Internet providers know something about them," said Vernon Keenan, Internet commerce analyst at Zona Research. "They like the fact that Amazon.com and CDNow will take their information and make recommendations for future purchases."
Delhagen said the FTC's timing is perfect because it gives some e-commerce companies a few months to step up their privacy efforts before the back-to-school and holiday buying seasons.
The report also will inevitably help those e-commerce companies that ensure your private information remains private.
"It will separate legitimate online businesses from those who aren't," Delhagen said. "The company that is in business by selling personal information will soon be out of business because they'll be red-flagged tomorrow." 
-- by staff writer John Frederick Moore
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