Silicon Valley is on alert. As federal officials move closer to creating Internet privacy laws, companies that have enjoyed the freewheeling nature of the Internet find themselves under increased scrutiny.
Google, Facebook and marketer Epsilon are among the world’s biggest repositories of digital information, and the giants have long lobbied against privacy laws that would curb their ability to collect and share data. To do so would limit their business prospects, they say, and they argue that consumers want advertisers to slice and dice data to serve up more relevant ads.
Now those concerns are rippling across the entire Internet industry.
“No matter what size the company, they are seeing how a government inquiry can shut down a business or affect the future of others,” said Hemanshu Nigam, founder of the privacy consulting firm SSP Blue and former privacy head for MySpace. “Privacy is now a line item in business plans.”
That’s a change of pace for Web entrepreneurs, who are typically given a long leash by regulators to plug away at new technologies without the distraction of politics and policy in Washington.
But in the past year, Silicon Valley firms have seen a bevy of Web companies swept into federal investigations of alleged consumer protection violations and fraud.
This week, Internet radio site Pandora revealed that it was called into a broad federal grand jury investigation into the alleged illegal sharing of user data by a number of firms that create apps for the iPhone and Android devices. Days earlier, Google settled with the Federal Trade Commission on charges it exposed data through its Buzz social networking application without the permission of users. Last year, Twitter settled with the agency after an investigation found the micro-blogging site’s loose security allowed hackers to access user information.
The damage from those investigations comes in the form of legal costs and, in the case of Google, the mandate of regular privacy audits. But the bigger worry is how those inquiries hurt reputation, said venture capital investor Raj Kapoor of the $2.8 billion Mayfield Fund.
These days, he said, privacy policies have become integral to his decisions about new tech investments. He’s seeing start-ups with just a handful of employees appoint a privacy officer to ensure new products and services are designed with data protection in mind.
Google said last June it had appointed a director of privacy. Yahoo and Microsoft also have chief privacy officers.
“It’s just good business because it engenders customer loyalty,” Kapoor said. “If we don’t make these efforts. the government will enforce regulation, and as much as the private sector can do on our own, the better.”