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September 19, 2012

The Potential Pitfalls of Data Mining

Posted by Sanjay Dalwani (View Profile | View All Posts) at 8:51 AM

When it comes to sharing personal information with retailers, consumers are behaving a little wary - even testy -- of late.  Let me share a story with you.  A friend of mine received a $10 gift card from Starbucks as a reward for filling out a marketing survey.  When the card arrived, a sticker urged him to register the card online in order to receive an additional gift of a free drink on his birthday.  Since his birthday was only a few days away, he decided to take advantage of the offer.  When he clicked through a few screens, he saw he had to fill out so many required fields - read, give up so much data - that he realized it was not worth another grande latte.

E-commerce has made tremendous inroads, and consumers have taken to cyberspace in a big way to do routine shopping.  And it's especially true when they've built up a wellspring of trust from a brand or a store they've already done business with.  But this comes with a caveat to the online purveyors of all those goods and services.  You may have the best intentions in providing customer service - wouldn't it be nice if Starbucks "knew" what your regular drink was, just like the local bartender knows his patron's preferences? - but there may be a limit.  

Some of the most widely used apps on Facebook--the games, quizzes and sharing services that define the social-networking site and give it such appeal--are compiling a lot of personal information, more perhaps than the great majority of its 800 million users may believe.  

Recently, the Wall Street Journal looked at 100 of the most popular Facebook apps.  The newspaper discovered that some wanted the email addresses, current location and sexual preference, among other details, not only of app users but also of those on their Facebook friend's lists.  In short, some of the spam that bypasses the best filters and arrives in your email box may be caused by the completely innocent actions of your friends.  Nobody has any sense where some of the data may end up.  

I don't believe there is a major consumer revolt brewing, but I do think that many companies using social networking for commerce should be very aware that privacy is an important issue, and that "perception" is paramount.  

Your customers are still not going to plow through a dozen pages of fine print about your privacy policies.  They know you're protecting your legal position.  They just want you to act responsibly.  

We should be constantly asking these questions.  Do they opt in? Or opt out?  Which one is the reasonable default setting?  Do we market this information to third parties?  If we do, how and when do we inform our customers?  Are we acting in a transparent way?  

Because more and more consumers are wondering why they have to "register" before they even consider buying your product or using your service.  Let's think before we put those asterisks in all the fields as a "requirement" for a customer to do business with us.      

We are in the early days of ecommerce, basically only a five-year-old industry.  Consumers, of course, want services for free, and the only way the app developers can make money is to collect, sort, and sell information.  This can be a fair exchange - as long as each party is aware of their obligation and responsibility.  

The White House already aware of this and is floating the idea of a privacy bill of rights.  This is because we don't have any rules yet about the secondary use of data.   The law is likely a long way off, but it's clear that if major abuses occur and there is an outcry of protest that it is a strong possibility.  If merchants properly self-police themselves in cyberspace - and respect their customers above all - then that is probably the best model. 

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