Will FTC Online Tracking Restrictions Hurt CRM?

Wednesday Aug 18th 2010 by Drew Robb
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The FTC wants Internet users to be able to opt out of online behavior tracking. What could that mean for customer relationship management (CRM) and data mining programs?

The Federal Trade Commission (FTC) wants Internet users to be able to opt out of behavioral tracking across the Web, which some say could hurt online marketing and customer relationship management (CRM) efforts.

The FTC will soon propose voluntary measures to curb online privacy abuses, but recent congressional testimony from FTC Chairman Jon Leibowitz suggests that the agency favors stronger measures, such as a browser-based do-not-track mechanism similar to the do-not-call list that exists to rein in telemarketers. The goal is to allow Internet users to opt out of online behavioral tracking.

The worst-case scenario is that any rulings or legislation could have a detrimental effect on online advertising and marketing, CRM and business intelligence vendors and users. But Gareth Herschel, an analyst at Gartner, said he doesn't think there's much to worry about.

"It is difficult to see how the FTC would implement such a scheme," said Herschel. "But the devil will be in the details."

Take the case of the do-no-call list for phone users. Even if someone is on it, companies already doing business with that user can continue calling. If you apply that same principal to website usage, the complexities of legislation become unwieldy. After all, people almost always visit specific websites as an action they initiate. Thus, they are implicitly agreeing to a relationship. That very fact makes tracking restrictions problematic.

Looking at CRM, then, any new laws could possibly miss the CRM marketplace entirely — based on the premise that to be in a CRM database, the individual would either have purchased goods from the company or otherwise have indicated interest in acquiring these products.

"The eventual impact of FTC action could be non-existent," said Herschel.

The FTC may also try to instigate some kind of opt-out scheme from tracking, mailings and further contact. But Herschel pointed out that current best practices provide for opt-out capabilities as a means of keeping customers happy.

"Most reputable companies provide opt-out schemes, so why legislate a best practice?" said Herschel. "In addition, users can use their browser options to prevent tracking via cookies."

But James Kobielus, an analyst at Forrester, thinks the FTC's action could potentially affect CRM programs.

"From the perspective of CRM vendors/users, this FTC plan, if implemented, could become a critical requirement — privacy controls governing behavioral analytics data collection," said Kobielus. "But that wouldn't necessarily be a huge stretch beyond what they're doing now."

 

National 'Do-Not-Email' Registry?

Another possibility is a national "do-not-email" registry. That would prevent companies trading lists for email marketing purposes. If an individual is on the list, they don't get the email. But even this relatively simple scheme is impossible to implement. With global corporations being the norm and the Internet being global in reach, it would be very hard to prevent email from sources outside of the U.S.. That was the fate of the U.S. do-not-call list — overseas call centers could largely ignore it.

But exploiting such loopholes might not be wise for those employing CRM.

"CRM is all about wanting to have a more open relationship with customers, so you don't want to be doing anything underhanded," said Herschel.

Of course, CRM systems are often interfaced with data mining and business analytics. And that frequently results in companies finding out a lot more about the behavior and buying patterns of clientele. Indiscriminate usage of the data gleaned might well make customers uncomfortable.

"You have to be careful about how the information is used," said Herschel. "A better approach might be being more explicit and convincing users of the value of tracking."

He gives the example of a company offering financial services software known as Exchange Solutions. It provides systems that make explicit deals that involve give and take. For instance, a mortgage might be available at a specific rate. But if the customer agrees to take out property insurance and open a checking account plus a direct debit set up with the same bank, it gains a quarter percent drop in the interest rate.

"Instead of data mining to guess customer behavior, it might be better to just be explicit with offers and open dialogue based on what is important to the customer and what is important to the firm," he said.

He also pointed out that convenience and privacy are two sides of the same coin. The more privacy demanded, the more inconvenience is experienced.

 

Business Intelligence Implications

Forrester's Kobielus sees little effect from any FTC mandates on business intelligence (BI) users and vendors.

"From the point of view of BI vendors/users, it would not have a huge impact," said Kobielus. "BI supports query and reporting against data from various sources. It would be the responsibility of the administrators of the data source systems — such as CRM applications — to implement controls on what personally identifiable data they collect, how they control access to it, and what other systems, such as data warehouses, which are at the heart of many BI apps, can access or load that information."

Many organizations have already implemented database privacy controls per various external mandates, such as HIPAA in healthcare, and according to their own policies. Therefore, any new mandate could be implemented as an evolution or extension to those ongoing privacy protection programs.

BI systems, though, won't need to be modified in any significant way due to the fact that they will continue to work with whatever behavioral data is maintained in CRM systems, data warehouses, and other databases. But Kobielus sees a way to sell tracking to customers.

"Given the many customer service-relevant advantages of continuing to collect, mine and leverage clickstreams and other behavioral data, such as personalization, geolocation and social-network influence analysis, it's likely that many, if not most, users would continue to want companies to collect this info on themselves and wouldn't request that it not be tracked in any major way," said Kobielus.

This view is backed up by IDC surveys. Irene Berlinsky, an analyst at IDC, said that almost half of users don't object to companies like Amazon (NASDAQ: AMZN), eBay (NASDAQ: EBAY) and Google (NASDAQ: GOOG) tracking their every move on the Web, and only a small group objected strongly.

"Those that frequently use eBay and Amazon are less concerned about privacy concerns than those that rarely buy online," said Berlinsky. "Familiarity helps you see it the value of tracking."

 

The Death of Free Internet Services?

Berlinsky mentioned the downside of effective FTC action — knocking out a lot of free Internet services. There is a trade-off between behavior analysis/tracking and the ability to offer free software and services.

"Changes could affect the rates advertisers are charged and could otherwise negatively impact existing business models," said Berlinsky. "The dangers of tracking are always stressed, but the value is not being sold well enough."

 

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