Privacy watchdogs mull Engage's future

Fears were set off after a company announcement earlier this week that CMGI, majority owner of Engage, withdrew a promised line of credit for $50 million, sparking concern for the company's future. In the announcement, Engage said it was considering strategic alternatives for the business, as well as evaluating its "business composition between software and media," according to Engage Chief Executive Tony Nuzzo.

The company lowered earnings expectations for the fourth quarter and said it would not break even at the end of its first quarter, ended Oct. 31, as previously thought.

Privacy advocates are concerned that if the company were to sell off its media business, its roughly 88 million profiles containing consumer habits on the Web would be sold alongside it. Engage, which has been promoted by executives as having "the most valuable database in the world," runs an online advertising network and sells technology to deliver those ads on the Web. Like many other online ad networks, it uses technology known as cookies to track consumer habits on the Web and to build profiles based on their preferences, while maintaining visitor anonymity.

The warnings highlight how privacy concerns have become a thorn in the side of distressed dot-coms, some of which have attempted to trade on consumer data in the past. Last year, Disney-backed Toysmart came under fire for trying to sell its customer lists. Many companies such as Toysmart have tried to sell data collected on consumers as a last-ditch effort to recoup losses.

"Bankrupt Internet start-ups selling cookies and personally identifiable data has become an endemic problem in the last few months," said Jason Catlett, president of privacy watchdog group Junkbusters.

In the event of Engage selling its media business, Catlett added: "I'd be on the phone to their CTO very quickly.

"Without seeing terms of any deal, it's hard to say what type of protest we would make, but certainly we would look very closely at where those trillions of cookies are being shipped."

Engage spokesman Mark Horan said he could not comment on whether the company plans to sell its online media business, but said simply that it is "exploring strategic alternatives." He would not comment on whether the company's approximately 88 million anonymous profiles would be a part of a sale.

As the online advertising market largely vaporized with the dot-com bust, many companies supporting the industry got sucked out into the ether. CMGI-owned AdForce, which operated ad technology, went out of business earlier this year, for example. Privacy advocates are worried that Engage and its consumer profiles are next.

"The concern here is that Engage will attempt to leave the media business and instead focus only on selling ad serving software," said Richard Smith, chief technology officer for the Privacy Foundation. "Privacy folks will oppose any efforts by Engage to sell off their anonymous online profiles database to other companies."

They fear that the anonymity of data held in a cookie can be compromised in the event of a sale. Cookies can be "retroactively identified," Catlett said, meaning that the company holding previously anonymous records of consumer browsing can later attach a name to all those records through Web forms.

"Engage has been doing this surveillance. It's bad enough that they were watching you without your permission but to sell this information off like a commodity seems doubly unfair," Smith said. "Now the question is, does this data have any value? Given the massive contraction in the ad industry, there may be no takers."

Engage plans to discuss its fourth-quarter earnings in mid-September.