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Better privacy policies can make money, finds P3P study

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Ecommerce businesses could charge more for their wares if they implemented an established privacy technology, an academic report (pdf) has found. The study showed that online shoppers are prepared to pay more at sites that guarantee their privacy.

Researchers at Carnegie Mellon University in the US armed a number of shoppers with the Platform for Privacy Preferences (P3P) tool, which alerts them to the privacy practices of sites they visit.

They found that shoppers were prepared to pay 30p more on goods worth £7 at sites that guaranteed they would not abuse their private details.

"Most Americans believe that their right to privacy is under serious threat and express concern about companies collecting their personal data," said the report, called The Effect of Online Privacy Information on Purchasing Behaviour: An Experimental Study.

"While most people claim to be very concerned about their privacy, they do not consistently take actions to protect it," said the study. "Our research shows that providing accessible privacy information reduces the information asymmetry gap between merchants and consumers. This reduction tends to lead consumers to purchase from online retailers who better protect their privacy.

"Additionally, our study indicates that once privacy information is made more salient, some consumers are willing to pay a premium to purchase from more privacy-protective websites."

The study equipped 72 online shoppers with P3P and observed how it changed their shopping behaviour.

P3P is a system designed by the not-for-profit World Wide Web Consortium (W3C) to allow websites to communicate their privacy policies to users.

Almost all professional websites will have some kind of privacy policy outlining what the business will do with the information about visitors and customers that it collects. Typically, though, users do not read the documents, which are often dense and littered with legalese and sometimes hard to find.

P3P was designed to broker automatic communication and negotiation on privacy between a user and a site. If privacy policies are written in the correct form a user's browser can automatically check a site's policies against that user's pre-defined privacy preferences.

The system then alerts the user in plain English about conflicts between the site's privacy policies and the user's preferences. Alternatively, the site simply rejects the website's cookie, the piece of code which stores information about the user.

Though P3P has been in existence for five years, it is still only used by around 20 per cent of ecommerce websites.

The Carnegie Mellon study, though, seems to prove that having P3P could bring custom to a site, which could in turn help its adoption.

The researchers developed a P3P-enabled search engine, Privacy Finder that annotates search results with privacy information derived from P3P policies and generates "privacy reports" for P3P-enabled sites.

Privacy Finder submits search queries to Google and Yahoo!, obtains the results, and checks for P3P policies. It then displays the results annotated with privacy indicators that graphically represent, on a scale of zero to four, how well a site's P3P policy matches the user's privacy preferences.

"Our experiment shows that once privacy information is made more visible, people will tend to purchase from merchants that offer more privacy protection," said the study. "This was true for both privacy-sensitive and non-privacy-sensitive items."

The researchers said their next step would be to produce a more comprehensive study in a more natural "field" setting.

Last month, the European Commission said it backed the use of technologies such as P3P, which it calls PETs (privacy enhancing technologies). It said that it would now embark on a plan to encourage users and retailers to use them.

"The commission considers that PETs should be developed and more widely used, in particular where personal data is processed through [computer] networks," said a commission statement. "The commission considers that wider use of PETs would improve the protection of privacy as well as help fulfil data protection rules. The use of PETs would be complementary to the existing legal framework and enforcement mechanisms."

The commission said it may ask European standards bodies to decide if Europe needs specific technical standards for PETs, and said it would ask public authorities to promote PETs by using them themselves.

It also said it would investigate its own accreditation badge for sites with good privacy practices, which it would call "privacy seals".

"The commission intends to investigate the feasibility of an EU-wide system of privacy seals, which would also include an economic and societal impact analysis," it said. "The purpose of such privacy seals would be to ensure consumers can easily identify a certain product as ensuring or enhancing data protection rules in the processing of data, in particular by incorporating appropriate PETs."

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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