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The Federal Trade Commission’s latest online privacy report, released last month, calls for federal regulation of the way Internet companies collect and use information about their customers. But as bureaucrats call for clumsy rules, the marketplace is proving more adept at striking a balance between increased efficiency in marketing and consumer privacy preferences. Supporters of new government regulations not only ignore the economic incentives companies have to cater to consumer privacy preferences, they also overlook the technological tools already available to give consumers increased control over their personal information.
Why do companies collect information online? Every company wants the maximum punch for its advertising dollar. This means being as accurate as possible about aiming adds at the consumers most likely to be interested. Internet companies’ use of consumer information to target their online advertising is the high-tech equivalent of a landscaping service differentiating between apartment dwellers and homeowners before a promotional mailing. It saves the company money and it spares consumers superfluous ads.
How do companies collect information online? The most obvious way companies collect information about consumers is by asking them to fill out a form when they visit a site. Consumers can refuse to do this, but often it’s a prerequisite for gaining access to that site’s services or information. In this sense, the consumer’s information acts as currency on the Internet. A 1999 study found that 86 percent of 460 Internet users polled wanted the ability to exchange their personal information with web sites as long as they knew the benefits for doing so and were informed about the use of their data.
The second way companies gather information is more controversial, but no less benign. Tiny files known as “cookies” are sent to the user’s hard drive to keep track of the sites he visits and the advertisements that catch his attention.
Even though the collection of information online isn’t the “privacy crisis” some think it is, people may still be uncomfortable with the practice. In such cases, what can consumers do?
Moreover, the profit motive involved in protecting privacy online is so strong that products for that express purpose are widely available to consumers. The following is a summary of just a few such products now on the market.
Browse the Web anonymously with Anonymizer . While browsing the Web, users may inadvertently reveal information about their viewing habits, geographical location, or even search terms they’ve entered on other sites. Anonymizer provides both a free and a premium service that uses an intermediary to prevent unauthorized parties from gathering this type of information. Instead of hopping from one web site to another, anonymizer.com users always leave from, and go to, the company’s protected location. This prevents sites that usually gather information about where a visitor is coming from or going to from doing so. The company also offers a product called “Window Washer” that cleans a browser’s cache, cookies, and history, among other services. This further prevents sites from accessing information about users’ activities and interests on the Web. A dramatic example of the anonymity that these products provide is the use of them during the conflict in Kosovo. They helped to protect individuals reporting on human rights violations from retaliation.
Freedom 1.0 , available from Zero-Knowledge Systems Inc.  uses the technological equivalent of fake names to disguise a user’s identity while online. The product conceals the source and destination IP address of the user’s communications and encrypts (scrambles) the data flowing over the Internet. The authenticated digital pseudonyms, called “nyms,” are unrelated to the user’s actual information and are one of three elements that provide online anonymity. The use of a nym triggers a function that encrypts all outgoing data and messages from the user’s system in multiple layers of cryptography. The last step is the Freedom network: The user’s Internet traffic is routed through a series of “privacy enhancing detours” in a group of servers that strip out location information for the user’s Internet service provider and leave only the nym intact. Freedom users remain largely anonymous even to Zero-Knowledge; the company is unable to match the nym to the credit card information. Zero-Knowledge charges $49.95 for five nyms and one year of service.
IDcide, Inc.  offers a browser plug-in called the Privacy Companion  that distinguishes between first-party cookies (sent from the current site) and third-party cookies (sent from other servers). The tool can be set to accept all cookies, just first-party cookies, or no cookies at all. In many cases, setting the Privacy Companion to block third-party cookies thwarts the tracking software used by advertising agencies, but still allows the first-party cookies that many companies require before granting access to their sites. The Privacy Companion tool is free and, when installed, it displays a small toolbar in each browser window where users can view a log of the networks that are attempting to track them and how often they’re trying.
Free of charge, Rex Swain’s HTTP Viewer  intercepts and displays every transaction between the user’s browser and any given web site. Interested users can go to the Viewer site, type any URL into the appropriate box, and view all that transpires when they connect to a web site.
The Enonymous Advisor  provides a “just-in-time” rating of over 25,000 web sites’ privacy policies. The product is a browser companion that can be downloaded and starts automatically every time the browser is in use. After the user enters a web address, a window automatically appears with links to information about that site’s privacy practices. The window also gives the user the option of one-click form filling in accordance with the information initially entered into the Enonymous Advisor product. All of this happens before any of the user’s information has been given to the web site. This service ensures that consumers’ privacy standards are always in line with the sites they use.
The Enonymous Advisor will also point out web sites that carry a Better Business Bureau Online  or TRUSTe  seal. Both seals signify that the site has complied with that service’s standards for privacy policies, information collection, handling, and more. More detailed information about standards for site membership is available on their respective web pages. The credibility of these seals has received some criticism, but the paramount importance of consumer trust to these groups will likely lead to increased accuracy in rating sites.
A free service from Brightmail  will filter out junk e-mail, known as “spam,” before it reaches the user’s inbox. After an individual or a small business registers with Brightmail, the company’s filters divert spam to a special storage area. The customer can view the suspected spam messages at any time by logging into their account on the Brightmail web site.
In a more pro-active vein, SpamCop  is a free service that allows consumers to punish spammers for sending junk e-mail. SpamCop will send e-mail on consumers’ behalf to the appropriate network administrator. When caught, spammers often lose their accounts and even get charged “cleanup fees” by Internet providers. For a fee, SpamCop can also process your mail and filter out the spam.
Conclusion. The notion of an impending “privacy crisis,” coupled with recent developments in online data collection, have inspired in some a knee-jerk reaction for government regulation. But understanding the incentives at work to address consumers’ concerns provides the proper perspective. As FTC Commissioner Orson Swindle recently noted, “Legislation could limit consumer choices and provide a disincentive for the development of further technological solutions.”
The technologies featured above are just a few examples of how market forces are already providing tools to meet consumer demand for control over personal information. Government action would set a dangerous precedent for state meddling on the Internet, slow growth, and stifle benefits to the consumer. The market is working—regulators would be wise to stay out of its way.
Jessica Melugin (email@example.com ) is a policy analyst at the Competitive Enterprise Institute.