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Wall Street clobbers DoubleClick on news of FTC interest

You can backpedal, but you can't hide

Web marketing outfit DoubleClick's shares plummeted on Thursday, largely on news of several impending investigations of its privacy policies, vouchsafing it the un-enviable distinction of leading the NASDAQ's losers for the day. The nose-dive followed a press conference earlier this week during which the company scrambled to lacquer up its image, and where it announced numerous initiatives to satisfy the public's privacy fears. It was too little too late, and investor retribution was swift. Company shares plummeted 12-1/8 to 94-3/8 on Thursday, in response to news of pending investigations by the States of Michigan and New York, and the Federal Trade Commission (FTC) in Washington. There seems to be a wide gap between the company's perception of its privacy safeguards and the perceptions of nearly everyone else. "DoubleClick has never and will never use sensitive online data in our profiles," company President Kevin Ryan said in a statement. Fair enough, but Ryan's definition of "sensitive" pertains to such items as medical records and financial statements, meaning that the company might well use data which the average person would be appalled to find floating around in a marketer's database. The company's spin campaign is going nowhere. "It is DoubleClick's policy to only merge personally identifiable information with non-personally identifiable information for profiling, after providing clear notice and choice," Ryan said. Not good enough, according to our sources. The kernel here is DoubleClick's previous policy of using no personally-identifiable data for consumer profiling, which it abandoned when it bought catalogue marketer Abacus Direct last November, and proceeded to merge the two companies' databases. Those who previously opted in, or declined to opt out, of DoubleClick's services now find themselves in an arrangement quite different from that to which they originally given their consent. Though the company has made much noise explaining how easy it is for consumers to opt out of their service, federal regulators will be looking closely at the difference between what DoubleClick promised Web surfers before it acquired Abacus, and what it delivers to them now. The FTC would not comment on an ongoing case, but Last May the Commission reached a consent agreement with Boston asset-management outfit Liberty Financial Companies, the operator of Web site called Young Investor. The site targets children and teens, and focuses on issues relating to money and investing. The FTC alleged that the site made false claims that any personal information collected from children in their on-line survey would be maintained anonymously, and that participants would be sent an e-mail newsletter as well as prizes. In fact, the personal information about the children and their family's finances was maintained in an identifiable manner, the Commission found. The site's "Measure Up" survey invited children to disclose financial information including the child's weekly allowance; types of financial gifts received such as stocks, bonds and mutual funds; spending habits; part-time work history; plans for college; and family finances. In addition to this anonymous data, the site asked for identifying information such as name, address, age and e-mail address in connection with providing the children with an e-mail newsletter and eligibility to receive prizes. At the beginning of the survey, Liberty Financial expressly stated that, "All of your answers will be totally anonymous," the FTC said. In that case, the company was admonished to tighten up its privacy disclosure statement, and to refrain from collecting data from young children without some sort of verifiable parental-consent mechanism. It would be reasonable, then, to imagine DoubleClick receiving similar treatment, probably requiring the company to improve its privacy notification setup, and possibly requiring it to dispose of data it collected on the basis of a disclosure mechanism the Commission might deem inadequate. With this in mind, one might see Wall Street's reaction as overplayed, and more revealing of a pent-up desire to swat one of the dot-coms which have been making it so twitchy all this year than of any sober, measured analysis of DoubleClick's financial future. But no one at The Register is rushing out to by DoubleClick shares just yet. The FTC investigation is likely to represent the least of the company's worries. It's the suits looming in Michigan and New York that should have the board shaking in their boots. We say this not because we have any inside information on either case. We simply note that in the past, ambitious state attorneys general have often scored copious political points for themselves by going after consumer-protection cases as enthusiastically and ruthlessly as possible. And if Michigan and New York show restraint in their actions, as we might expect them to do, DoubleClick is still one juicy hunk of bait for any AG who might welcome a righteous consumer crusade to smarten up their image. Thus death by a thousand cuts at the state level may yet prove to be the company's undoing. ®

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