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New Web Privacy Rules May Cost e-Businesses

A proposed online privacy bill would protect consumers, but could also hurt small businesses.
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Few people are aware of just how much personal information is collected from their daily web activity except for the online businesses that depend on that data, but Congress, however, may soon be stepping in to change that.

According to a recent article by the Associated Press, Rep. Rick Boucher, D-V.a., chairman of the House Energy and Commerce Subcommittee on Communications, Technology and the Internet, is drafting a bill that would place strict guidelines on the information websites collect from visitors, and the ways that information is used. Tentative statutes in the bill may limit online marketing and advertising techniques, such as tracking web browsing habits and analyzing "shopping cart" data, which some experts say could pack quite a blow to small online retailers.

"A lot of large online retailers already have pretty extensive privacy statements. For small businesses, it's harder for them to create a more complex web infrastructure and to have some of the same features larger retailers have," says Phil Hochmuth, senior analyst at the Boston-based Yankee Group.

One of the major regulations that may be included in the bill is a mandatory "opt-in" rule for websites that collect information on their visitors that would allow the user to decide if they want to participate in data collection, or opt out altogether. Those websites would also have to disclose what information is being collected, and those that collect sensitive data, such as Social Security numbers and financial data, would automatically be subject to the rule.

While this won't be the first time Congress has stepped in to curb breaches of privacy on the web, this effort may carry the largest impact to date, since so many businesses have migrated their services to the Internet, but may not be able to afford to beef up the security of their sites and make the necessary changes required by new laws.

"The focus for most small businesses has got to be primarily their business," says Hochmuth. "A lot of small businesses are working, especially with the economy, just to keep their heads above water."

According to Hochmuth, small businesses that choose to outsource their retail operations may be protected if the legislation is passed. But Robert Miller, co-founder and owner of outdoor gear retailer TwoKnobbyTires.com, says his business could still buckle under the new guidelines if Amazon, the affiliate he uses to host his site operations, is forced to make any major changes.

"If Amazon decides that's just too much work and not enough payoff, that could affect my website," says Miller, who started the Colorado-based company a little over a year ago. Miller says if he wouldn't be able to comply with new security standards, he might have to find a new host, which could result in a loss in sales and search engine rankings.

Miller's trepidation stems from another legislative decision that took place last year involving online retail, when the governor of New York signed a law requiring out-of-state retailers to collect a state sales tax from New York-based customers. Amazon complied, but industry giant Overstock opted to suspend ties with its 3,400 New York state affiliates.

"Any kind of switch onto a new platform would take an unfathomable amount of time and energy," says Miller. "It's a temporary upheaval, but you wouldn't want to take that hit during the holiday season."

Last updated: Sep 22, 2009

J.J. MCCORVEY | Staff Writer | Inc. Reporter

J.J. McCorvey is a reporter at Inc. magazine, where he covers a wide range of topics, including technology and business research. He has covered metro news for The Detroit News, and his work has been featured in Men's Fitness.




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