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Gone phishing
Growing fears over identity theft and e-mail scams may put a damper on online marketing.
June 30, 2005: 5:07 PM EDT
By Thomas Mucha, Business 2.0

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NEW YORK (Business 2.0) - An unwelcome dose of reality hit the booming online marketing industry this week. Online security fears are beginning to lower confidence in online commerce.

According to a new study by Gartner Research, growing fears over identity theft, continued cyber-attacks on databases containing personal financial information, and a big spike in "phishing" -- e-mail scams that attempt to pry personal data from users -- will result in a 1 to 3 percent decline in Web commerce growth over the next three years, a revenue loss that Gartner puts in the "billions of dollars."

That's not all.

"It's going to put an enormous dent in online marketing," predicts Avivah Litan, a Gartner analyst and the author of this week's report. It's all about confidence -- or, more precisely, a lack of it.

"Consumers are being targeted directly, while their personal data is being attacked on corporate servers. It's a 360-degree threat."

The most immediate threat to online marketers involves the use of e-mail marketing, a.k.a. the low-cost dream channel for communicating with customers by sending out mass mailings about new sales promotions, product changes, or upgrades.

"Consumers don't trust most of it," Litan says. In fact, 85 percent of Americans now delete these e-mails without opening them. "They're worried about clicking on any links in an e-mail or even on a Web site," she says. "There's tremendous anxiety out there."

Phishing, which involves phony e-mail that looks exactly like the kind of missive you'd receive from, say, your bank, has been the biggest problem of late.

According to Gartner, last year 73 million U.S. adults received an average of 50 phishing attacks each -- up nearly 30 percent from the previous year. And 2.4 million people say they lost money from these attacks.

It's not just consumers who are struggling with this, either: Gartner says major U.S. companies and Internet service providers suffer 150 to 200 phishing attacks targeting their brands each week.

Tactical change

This troubling trend is hitting just as the industry is undergoing a wrenching shift of billions of dollars from traditional marketing and advertising strategies to online tactics that rely on active consumer participation, such as clickable banners, search engine marketing, blog marketing, viral or buzz marketing, and, of course, e-mail marketing.

These emerging tactics only work when consumers play along -- after all, these are active, not passive, forms of advertising. So rising security worries, especially those that directly target consumers, threaten to erode much of the early promise of this rapidly evolving industry.

"It has very far-reaching implications," Litan says.

So what's a marketer to do? First, don't panic. While potentially serious, the problem isn't terminal.

"These concerns won't stop online commerce," Litan says. "It will just slow it."

It will, however, change consumer expectations. Litan predicts that consumers will increasingly demand that companies provide secure communications and do more to protect their data -- at no extra cost.

What marketers can do

So marketers will need to work harder to improve security, and then will have to scream from the mountaintop to make sure consumers know about what they've accomplished. Litan points to AOL (a corporate cousin of CNN/, which has done a good job of differentiating itself by offering a variety of online security features and using those offerings as a selling point.

She also suggests additional stop-gap steps to help ease consumer fears: better e-mail encryption, more secure password protection, more Web sites that ask consumers questions only they would know the answers to, as well as more financial guarantees that protect consumers against future losses.

Longer term, she says, "we really need a system like caller ID for the Internet. People need to know who they're dealing with."

Other online marketers say these security concerns will turn out to be a short-term blip. The Web, they say, is already an integral part of almost any marketing campaign, and nothing will change that.

"These fears will become like anything else in this world," counters Spencer Hapoienu, president of Manhattan-based online marketing firm Insight out of Chaos. "Like crossing the street: You can get hit every time, but people still do it."

Hapoienu is confident that Microsoft and other technology leaders will come up with new measures to thwart, or at least minimize, the threat of cyberfraud. They certainly have the incentive to fix this problem.

Even so, that doesn't mean marketers can be complacent.

"Marketers will need to work at getting consumers to participate in online marketing campaigns," Hapoienu says. To do so, "e-mail offers will need to be hotter, and you've got to promise more value for participating online. It will just mean everyone works a little harder."

For more about online security, click here.

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