Congress vs. the Cookie Monsters

2011 is setting up to be the year of the great online privacy debate. Legislation and recommendations aimed at providing Americans an enhanced level of privacy will is colliding head-on with businesses in the consumer data aggregation and behavioral analytics space.

At the end of 2010, Allison Mason of Rogin Nassau contributed a column to peHub.com that stirred up reader sentiment. Mason noted that the Federal Trade Commission is establishing its online consumer privacy framework, which should include a “Do Not Track” system. The Department of Commerce is also attempting to set up “Fair Information Practice Principles” that may create a mountain of red tape and compliance issues for advertisers. More importantly, it could drive jobs, tax revenue and innovation overseas, critics say.

Remember, VCs: legislators tend to side with their biggest voting constituency, namely, the sizeable Baby Boomer population in the U.S. that is much more likely to visit the polls each November. As legislators seek to protect privacy rights that some say is being infringed upon, will consumers be more proactive than they were when the “Do Not Call” list debuted? Experts and executives say that “Do Not Track” options will not be as clear-cut, or as easily enforced.

Marketers have bought customer lists for ages—long before Internet. Their means of accessing data are not vastly different from the way search engines track users via cookies for advertising purposes and display customized content based on recorded search terms. Why do some Americans think the usage of their Internet activity and online transactions should be subject to greater restrictions than information gleaned from their in-store purchases?

VCs are in an unenviable position. They can point to the jobs and money factor, but for as long as legislators trumpet “privacy” issues—be they real, imagined or simply created to be the political football du jour—it is likely they will be out of favor with the public. spend big. If lawmakers fail to heed past lessons—like when they forced online gambling overseas, which hurt American casinos and tourism industries dependent on bettors—businesses operating on aggregated consumer data and behavioral analytics will simply choose to work in countries with more lax legislation, still targeting the U.S.

They’ve got the Internet in the British Virgin Islands, too, Senator Rockefeller.

Jeremy Liew, managing director with LightSpeed Venture Partners, said he steered clear of data analytics and behavioral tracking companies for the last few years because of lingering uncertainty over how the space will be regulated.

“It’s totally unclear how it will get policed,” he tells peHub. “Startups don’t have as strong of a voice in this conversation.”

He’s on to something. It remains vague at best how Do Not Track would be implemented and there are critics who argue that it simply cannot. Opacity aside, while the consumer behavioral tracking and data analytics space is guaranteed to experience some upheaval, it will be years before this comes fully into effect.

This leaves not only opportunity in the near-term for so-called third party cookie monsters that surreptitiously latch onto consumers’ Web viewing trends, it generates a chance for search engines and smartphone producers to add data protection via deals and organic development for customers that are defensive of their personal information.

Jonathan Marino is the editor of peHub.com. The opinions expressed here are entirely his own.