The right to be left alone. Garbo craved it. Brandeis defended it. And the Fourth and Fifth amendments to the US Constitution uphold it. In Olmstead v. United States (1928), Mr. Justice Brandeis declared, "The right to be left alone is the most comprehensive of rights, and the right most valued by a free people."

But protecting that right is becoming more difficult. Marketers expose the people of the United States to some 12 billion display ads, three million radio ads, and more than 300,000 television commercials daily. The unsolicited electronic junk mail known as "spam" now makes up about 10 percent of all e-mail around the world. An average US consumer is buffeted by roughly a million marketing messages a year across all communications media, or about 2,750 a day. Even worse, companies use private information ferreted out from daily commercial transactions, financial arrangements, and survey responses not only to inundate consumers with this kind of marketing rubbish but also to deny them credit and insurance.

Indeed, the very lingo marketers use to describe their methods of finding and influencing customers—military metaphors like "target," "campaign," "deploy," "blitz," and "capture"—betray an increasingly confrontational mentality about how companies should treat consumers. Telemarketers call them at home at all hours. Direct marketers stuff their mailboxes. Relationship marketers demand ever more of their personal information. Who can blame them for feeling besieged?

The rise of the Internet, which permits companies to get information about customers more easily than ever, has brought privacy to the center stage. Consumers and consumer protection groups, such as the Electronic Frontier Foundation, fear that businesses will use the opportunity the Internet has given them to capture information about unsuspecting people who visit their Web sites. By merging this information with a wide range of publicly available data (such as credit histories, phone bills, and medical records), those companies will accumulate vast databases of knowledge about their customers.

Lawmakers and advocacy groups in many countries are mobilizing against this threat. In the United States, for example, legislators at both the national and the state levels have sponsored comprehensive consumer health care bills of rights. Consumers are acting on their own behalf as well. Some of them ask marketers to remove their names from telemarketing and direct-mail lists. Others have taken part in "Buy Nothing Day"—a 24-hour consumer-spending moratorium sponsored (during the Christmas shopping season) by Adbusters, which vows to hold the marketing strategies of consumer product companies up to public scrutiny. Still other consumers provide false information to online registrations, surveys, and forms; participate in "TV Turnoff Week"; and give false information after joining focus groups.

These developments may well presage a broader consumer backlash. In a 1996 DIRECT survey, 83 percent of respondents favored a law requiring the inclusion of an opt-in procedure for names on direct-mail lists. Seventy-two percent of the more than 10,000 World Wide Web users polled in 1998 by Graphic, Visualization & Usability (GVU) wanted new legislation to protect their privacy on line, and 82 percent of them objected to the sale of personal information. A 1998 Business Week poll found that 53 percent of respondents wanted laws regulating the way personal information can be captured and used on line. That figure was three times higher than the proportion of consumers who said that the government should let trade groups develop voluntary privacy standards.

Recent warnings from trade groups and organizations that oversee corporations bear out these findings. In 1997, the US Federal Trade Commission (FTC) warned businesses to adopt strong privacy guidelines to avoid government legislation. In 1998, the US comptroller of the currency, who oversees nationally chartered banks, cautioned them to protect consumers’ privacy or risk new government regulations. In the same year, the National Retail Federation (in the United States) suggested that its members adopt voluntary guidelines to let customers know beforehand the information they were collecting at cash registers—and how they planned to use it.

But few marketers seem to have recognized the issue’s importance to consumers. In late 1998, for example, Geocities, a popular Internet operation that allows people to put up free Web sites, agreed to settle FTC charges that it had misled its two million members by secretly selling personal information about them to marketers. (As a result of the charges, Geocities’ stock on Nasdaq dropped by 15 percent.) Also in 1998, Pacific Bell asked regulators to let it call unlisted numbers to make unsolicited sales pitches but was turned down after consumer groups and California legislators protested. America Online decided to sell its members’ phone numbers to a telemarketing company in 1997, only reversing its decision when members complained. American Express announced plans in 1998 to sell extensive information on its cardholders to merchants despite criticism from privacy groups. Blizzard Entertainment, makers of the popular Starcraft online game, confessed in 1998 to using the Internet to obtain personal information from consumers without their consent. Giant Food and CVS, a supermarket and a drugstore chain, respectively, shared medical information with a marketer paid to send their customers prescription reminders and promotional literature for new drugs until complaints forced them to stop the practice in 1998. And last year, too, GTE inadvertently published unlisted phone numbers and addresses of up to 50,000 California customers, some of whom (such as police officers and crime victims) might have been endangered. The blunder provoked 25,000 calls and 400 e-mail letters to the company, as well as 1,500 requests for new phone numbers.

keters and consumers have at least some complementary needs: consumers need the goods and services that vendors sell, and vendors need consumers to buy these goods and services. But it costs companies very little to send out junk mail and catalogs that are expected to generate response rates of no more than 2 percent. This implies that 98 percent of the marketing materials consumers receive is irrelevant to their needs and interests. Inundated with so many such messages, consumers feel besieged by marketers. Marketers are beginning to wear out their welcome with the very people they need most: customers.

The high cost of shopping

Products are increasingly complex and consumers need more help than ever

Despite the overwhelming irrelevance of these marketing efforts, consumers need more help than ever. Products are increasingly complex. Ways to buy them are proliferating. Consider the home computer. PCs are impressively difficult machines to purchase, install, and operate. Anyone who has tried to buy a PC (and some 60 million US households have at least one) knows the frustration of talking to sales reps who have no idea which features are really important. Worse yet are the sales reps who overwhelm customers with technobabble. Do you want your computer to have a 1-GB Jaz drive with a 12-ms access time and 5.5-Mbps data transfer "capabilities"? The fun continues once you make the purchase. The New York Times reports that vendors of home computers receive some 28 million calls for technical support every year. Microsoft alone gets about 15,000 a day. And after you set up your system, you must learn how to cope with the Internet—another formidable task.

Consumers may expect such challenges when they buy computers. But what about cars, televisions, clothes washers, and even lowly coffee makers? With more and more products of greater and greater complexity continually being launched, consumers may well have to spend more time and money than ever finding the best possible products at the best possible prices, particularly for complex, big-ticket items that are purchased infrequently.

Some readers may question this last claim. After all, the telephone and the Yellow Pages "let your fingers do the walking," and the advent of the Internet has made searching out products easier than it used to be. Research shows that the telephone and the Internet have greatly reduced the time needed to find many products.¹ Nonetheless, consumers mostly find it easier to learn about products they buy frequently and don’t have to research in detail. Yes, it is simple to log on to Amazon.com and order a best-seller—at least once you figure out how to negotiate the Internet—or to go to Travelocity and find the lowest airfare between Dallas and Rome. More complex purchases, such as air conditioners and health club memberships, are quite a different story.

The proliferation of products and services also plays a part in raising the interaction cost of buying them. Companies formerly introduced new products once every five years or so. Intensified competition and a faster pace of innovation now mean that products are modified or replaced on six-month cycles. Technology has made it easier for small businesses to compete successfully in many markets, thus adding to the deluge of products.

Information technology, meanwhile, helps companies expand their reach from local markets to global ones, thus increasing the number of choices available to customers almost everywhere. Widespread deregulation (in the form of trade liberalization and the removal of restrictions on entry into specific industries) is another force encouraging vendors to enter new markets and therefore to bombard them with new offerings. Moreover, the expansion of the Internet has intensified the explosion of choices available to consumers by removing a major constraint on the proliferation of products: limited retail shelf space. By logging on to the Internet, consumers can usually access each and every product offered for sale in a particular category.

As the range of potential choices and vendors expands, the time and effort required to compare and evaluate them expands as well. Vendors desperate to make products seem distinctive design and represent them in slightly different ways, making straightforward comparisons virtually impossible. Consumer electronics vendors, for example, often take a VCR or "boom box" and change its model number, color, and perhaps a couple of marginal features to allow major retailers to differentiate their offerings from those of other retailers.

These problems, difficult enough when consumers actively seek products to meet specific needs, become more serious when people are merely browsing; in other words, when they don’t know in advance what they want and may not even be planning a purchase. As product offerings multiply, the effort required to consider thousands, if not millions, of variants within specific categories has soared out of control.

A widening gulf

Marketers want information but consumers demand that their privacy be respected

Behind the continuing invasion of consumer privacy and the constant expansion of product choices lurks an unrecognized truth about consumers and marketers: their wants and needs are misaligned. Marketers gather information about consumers and create loyalty programs to build deeper and more lasting relationships. But the desire of consumers to select and compare makes it hard for them to develop deep or exclusive ties to any one vendor. Marketers want as much information as possible about consumers, while consumers demand that their privacy be respected and secured.

This apparent conflict has its roots in the marketing approaches that have become prominent over the past 10 to 20 years. Database marketing, relationship marketing, permission marketing, and loyalty programs aim largely to help marketers overcome a fundamental lack of information about the customers they don’t know by giving them more information about the customers they do know.

Relationship marketing—also known as one-to-one marketing—first came into fashion in part because companies had (and still have) limited information about people who were not already their customers. United Airlines, for example, identifies business travelers who fly extensively on United and often upgrades service to them to increase their loyalty. But that carrier has much less ability to identify American Airlines frequent flyers who happen to book the occasional flight on United. From its perspective, such passengers are not terribly interesting, because they don’t seem to travel much; therefore they don’t receive special attention or service. If United had access to complete travel profiles of its passengers, including information about all of the airlines they patronize, it could target and serve highly profitable business travelers much more effectively.

Because companies are not in a good position to learn about people who are not their customers, or who buy their products or services infrequently, relationship marketing focuses largely on collecting additional information on the customers they do have. The idea is to set in motion a virtuous cycle in which they deliver additional value to customers. If it really worked this way, customers would be motivated in turn to provide companies with additional information, which they could then use to deliver yet more value.

That is why relationship marketers regard "share of wallet" within a product or service category as a key measure of success. To obtain as much information as possible about customers, the vendor must capture the full range of their business within a particular category. Otherwise, customers undermine the vendor’s ability to build rich profiles of them—and to capture a high share of their transactions. Companies that use relationship marketing thus find themselves at odds with the customer’s desire for selection and comparison. Moreover, the need of relationship marketers to gather as much information as possible leads them to intrude on their customers’ lives to an increasingly intolerable extent.

Permission marketing,² another approach, explicitly acknowledges the need to obtain authorization from customers before blitzing them with advertising messages. It rejects so-called interruption marketing programs, which rely upon advertisements inserted in the mass media or delivered in unsolicited ways, such as phone calls at dinner. Permission marketers instead promote contests and sweepstakes that encourage consumers to participate in exchange for consenting to receive certain marketing messages.

To be sure, permission marketing does begin to address the problem of finding and reaching customers in a less intrusive way by introducing the notion that vendors should pay customers in kind or in cash for their attention. But it fails to address the challenge of attempting to access information about customers of competing vendors. Indeed, even when vendors try to find information about their own customers, they can never really know if those people are totally loyal to them or patronize them only occasionally. Vendors therefore revert to interruption marketing to get more business from their current customers.

An economic force works against permission marketing as such: the high value of an acquired customer makes it profitable for marketers to make large numbers of calls and to send out vast amounts of direct mail, even when consumers reply only 2 percent of the time. Consumers, not marketers, bear the cost of the interruption.

As a result, the gulf between marketers and consumers is getting wider. Not long ago, consumers regularly responded to marketing surveys. Today most consumers do so only if they receive rewards in cash or in kind. Consumers once provided companies with referrals for new business; today they rarely give out such information free of charge. Ten years ago, many consumers responded politely to telemarketers who called them at home during dinner. Today people resent the imposition and often simply hang up. Consumers will soon demand that telemarketers compensate them, just as people now routinely receive compensation for participating in focus groups.

The Internet makes these difficulties more acute. As it lowers the barriers to entry to markets and the number of vendors expands, marketers will confront growing competition for the attention of customers. Most marketers will increase their use of advertising, direct mail, telemarketing, and spam. Numbed consumers will pay less and less attention, prompting still more advertising in response. The same dynamics will be played out as companies use the Internet to gather ever more detailed information about consumers, and they respond with demands for stricter government controls on its capture and use.

Power shifts to the consumer

Consumers want to get something in return for their data

The current struggle between marketers and consumers is also a consequence of the economics of information capture. Consumers know only too well that companies are far better able to collect information than to deliver meaningful value in return for it. As we have seen, most companies use information about their customers mainly to generate growing volumes of junk mail and unsolicited telemarketing calls. One of the easiest ways for companies to derive value from this information involves selling it to third-party list businesses, which in turn resell it to companies that use it to target direct mail and telemarketing. Consumers increasingly recognize that they are selling their privacy on the cheap to companies.

Seen in this light, for many consumers the privacy backlash may have less to do with the desire to conceal information about themselves and more to do with their pragmatic assessment that the return for the information they divulge is not satisfactory. Consumers, after all, are rational. Most have shown that they will release personal information if they can profit by doing so. In doctors’ offices, for example, consumers share intimate details of their health in exchange for appropriate medical care. They share intimate details about their money and holdings with financial consultants in exchange for appropriate advice. They insist that airlines record their frequent flier numbers in exchange for upgrades, free flights, and a growing array of other products and services. In all of these exchanges, the key is that consumers receive sufficient value for their data.

Several new technologies will soon permit consumers to challenge marketers for control of personal information. Some of these technologies were designed for the online world. "Anonymization" software allows people to shield their identities as they surf the Web. "Cookie" suppressors stop companies from planting information in the computers of people who access their sites, thus preventing them from identifying and tracking the behavior of those people. E-mail filters permit users to protect their computers from spam. Anonymous payment mechanisms help people buy products and services on line without revealing the purchaser’s identity. Reverse cookies give consumers a way of keeping track and storing records of their own online behavior. Other technologies benefit consumers in the physical world. Smart cards resemble credit or ATM cards but "remember" transactions. Digital cash is similar to its physical counterpart but is used on line. Finally, set-top boxes for televisions will allow consumers to record their viewing behavior.

Alone or in combination, these technologies will finally make it possible for consumers to seize control of information about themselves and to choose whether to keep it private or to share it with vendors and third parties. Consumers will be able to obtain much more comprehensive and accurate profiles of their own commercial activities than any individual company (or plausible alliance of companies) could hope to collect. They will then be able to decide whether to release—or withhold—this information. (Note that the ability to record details about the specific items consumers buy will require the development of a common set of standards and protocols.) In large part, consumers will make the decision to sell or not to sell by evaluating what companies offer in return.

As these technologies make it easier for consumers to capture information about themselves, the challenge facing companies will become more complex. While Anonymizer sites cloak the identity of consumers as they surf the Web, smart cards and reverse cookies will make it easy for them to produce integrated profiles of their purchases. Ambitious consumers could merge this information with data collected on viewing meters attached to television sets in their homes to generate profiles combining their viewing habits with their purchasing patterns. Marketers would pay handsomely for such information.

In one elegant stroke, these technologies offer a solution both for marketers and for people who worry about the erosion of their privacy. If such people do not wish to reveal information about themselves, they will be able to withhold it. If they choose to make the information available in return for something of sufficient value—and the evidence suggests that most of them will—they will be able to do this as well. In the new dispensation the watchword will be, "Let the seller beware, and be ready with offers for consumers."

The rise of the infomediary

Consumers on their own will not have the time, the patience, or the ability to work out the best deals with information buyers. Nor will vendors have the time to haggle customer by customer. To strike the best bargain with vendors, consumers will need a trusted third party—a kind of personal information intermediary, or "infomediary"—to aggregate their information with that of other consumers and to use this combined market power to negotiate with vendors on the consumers’ behalf. We believe that companies playing the infomediary role will become the custodians, the agents, and the brokers of information about consumers, marketing it to businesses and giving them access to it while protecting the consumers’ privacy. These new entities will emerge from combinations of companies that provide unique brand franchises, strong relationships with customers, and radically new strategies. They will spur consumers to begin demanding value in exchange for personal data. And they will help consumers reduce the interaction cost of searching for goods at favorable prices in an environment of proliferating and increasingly complex products.

Since these companies will provide consumers with value, in part, by lowering the interaction costs they face, infomediaries will emerge first in markets where product lines are complex and change rapidly, and consumers have difficulty understanding complicated or opaque pricing structures. Such products often require substantial research to evaluate, and prices charged for them are hard to compare. Customers will interact with infomediaries primarily over the Internet, and their services will essentially involve marketing information, so they will also find fertile ground where products and services have a high information content and can be delivered digitally.

As consumers assume ownership of their own behavioral and transactional data, infomediaries will create a new form for the supply of information. By connecting the supply of and demand for information and by helping both parties to determine its value, infomediaries will be building a new kind of information supply chain that satisfies both marketers and consumers.

The senior managers of today’s biggest corporations, as well as farsighted entrepreneurs, can profit by taking the customer’s side in matters of privacy and information capture. Those who recognize the opportunity and act on it will build infomediaries that generate considerable value. Such infomediaries will take advantage of sweeping forces already set in motion by the Internet and by information technology more generally.