Analysts agreed that RealNetworks made the right moves Monday to limit the damage, after news reports surfaced that the company was surreptitiously keeping tabs on music its customers played on their computers. The company issued an apology and released a security "patch" to disable features of the program that allowed the company to obtain data about their customers.
"We respect and value the privacy of our users, and we deeply apologize for doing anything that suggests otherwise," Rob Glaser, chief executive of RealNetworks, said in a statement.
It's an open question, however, whether consumers respect their own privacy as much as RealNetworks professes to. Although industry observers condemned RealNetworks for failing to adequately inform customers of their data collection practices, most agreed that the trend has been toward more rather than less consumer cooperation in sharing personal information with companies.
Some of that may have to do with consumer indifference, but at least part comes as a result of greater efforts by companies to reach out to consumers with free offers and enhanced services.
"The snafu was that [RealNetworks] didn't disclose" what they were up to, said Martin De Bono, an analyst at Gomez Associates. "Otherwise, people don't care...The important thing is to give consumers choices about the information they give up."
Few companies are punished harshly for soliciting consumer information openly. RealNetworks competitor MusicMatch, for example, discloses that it keeps tabs on the musical choices of its customers to regularly suggest new selections to individual listeners based on their tastes.
"If treated responsibly, it is a very powerful tool for building customer relationships," said Dennis Mudd, the company's chief executive. "There needs to be informed consent, and the information provided must be returned to consumers as a useful service."
Malcolm Maclachlan, a media and e-commerce analyst at International Data Corporation, agreed. "What this shows is that if companies want access to customer information, they're going to have to offer incentives. And people can get incentivized to do anything these days."
A question of trust
But privacy advocates warn that when it comes to informed consent, there is a big difference between appearance and reality.
"Everything I see suggests consumers are uncomfortable with this, and the practices of the companies bear that out," he added.
Especially telling, Sobel said, is that companies generally use an "opt out" rather than an "opt in" system in seeking information from customers.
"The burden is on the user to prevent collection of information rather than on the company inviting people to volunteer their information," he said. "And that indicates they know most people won't sign up if they are asked to make a conscious choice."
Sobel also pointed to surveys from Georgia Institute of Technology indicating that Web users are not eager to give up personal information. A 1998 survey, which received 1,482 valid responses, overwhelmingly endorsed strong privacy provisions for the Internet.
Analyst Alan Sinnreich of Jupiter Communications seconded the notion that some users put a premium on privacy. "With RealNetworks, the information was lifted off their computers, and for a lot of users the desktop is sacrosanct," he said.
"It's a PR debacle for them," Sinnreich said. "They positioned themselves as counter-establishment, as the anti-Microsoft company. And in the end they came off as not all that different."
Sinnreich said the RealNetworks incident should be seen as a warning to e-commerce companies, which could see a big chill if lawmakers were to weigh in with regulations at the behest of alienated customers.
"That kind of 'deep' customer tracking information is the holy grail for a lot of e-commerce companies," said Sinnreich. "Now consumers are getting savvier about brokering their personal information. They have a good nose for value, and if they can get the same service without giving up their data, they will.?
But other analysts said customer behavior conflicts with theories and surveys that show high concern for privacy among end users.
"The average person isn't going to go to the wall to protect their privacy because it's a pain in the butt," said IDC's Maclachlan. "In almost every case [of privacy violations], the outcry is far worse than the individual abuse. There's a certain hysteria, and then the hysteria fades."
A bigger concern for e-commerce companies, according to Maclachlan, is figuring out the equation for turning consumer cooperation into profits.
"Advertising and privacy are on a threshold as people try to figure out what they have to give consumers to give up information," he said. "A free computer seems to work. But then you run into a paradox of marketing: The people who are most willing to give up their information are the ones you least want to reach."