Infomediaries See Profit in Consumer Privacy

An uncommon kind of hi-tech company is winning the attention of venture capitalists, DMers and even some privacy advocates who see the potential for an enormous growth industry in the management and brokering of consumer information and identity. The entrepreneurs behind these start-ups like to brand their businesses under different titles, but they're best known as “infomediaries.”

At the heart of the infomediary is the notion that a new generation of customers is coming of age wanting more control over how personal information is used in world commerce — and, eventually, these consumers will begin demanding payment for use of that information. The concept is outlined in the new book “Shaping Markets When Customers Make the Rules” (Harvard Business School Press, January 1999), by John Hagel III and Marc Singer.

“I see this [kind of business] as essentially replacing a lot of today's direct marketing. We want to help consumers take back their identity,” said Fred Davis, CEO of Lumeria, an Internet software and services company.

Davis said that all direct marketers have to “pay somebody for their information,” whether it be a list broker, a consultant or someone who manages and builds their existing database. Direct marketers eventually will grow to like the infomediary concept “because they can reach the customer directly — a customer that has asked for the information. The direct mail is not as likely to get tossed. It is screened before it goes to the customer. It keeps your printing expenses down, your cost of overall business down.”

Another company in the same industry genre is PrivaSeek, Louisville, CO, whose mission is to “empower both consumers and businesses with easy-to-use tools to safeguard and leverage personal information.” The company recently announced its formation with a $14 million dollar investment from TL Ventures, Internet Capital Group and Sequel Venture Partners.

“[By] providing consumers with an independent, fully consensual framework for the protection, collection and use of personal information on the Web, PrivaSeek facilitates e-commerce and personalization opportunities for both online marketers and consumers,” said chairman Gary Anderson, adding that they can “fill the critical information gap between buyers and sellers. We see it as a one-of-a-kind opportunity. It both protects a vital consumer right and stimulates e-commerce.”

The idea behind the infomediary model that has Wall Street's interest is the growing but untested belief that direct marketers are willing to pay for better prospects or opt-in consumers who are actually looking to make purchases of certain products and services and would welcome solicitations tailored to their requests.

At Lumeria, “we count consumers' information in two main categories: what you are and what you know,” Davis said, referring to rudimentary demographics, but, he said the company will provide more than just better direct marketing data. “As a consumer, we'll act as your agent. We'll go out and sell your assets, your personal information — but only what you want to disclose. We're also only going to be selling one-time rights to use our lists, and we estimate starting out that the general rates are going to be running from 10 cents to 12 cents a name.”

Lumeria plans to keep online accounts that consumers can check — some will receive checks for $10 or $20 a month; others could get hundreds of dollars a year if they are the kind of consumers that businesses want to target. Davis started the company a year and half ago and currently has 12 inside employees and a number of outside contractors and DM vendors.

“We see revenue immediately, and we are going to continue working through partnerships and financial institutions,” he said.

Apparently, others see revenue and important partnering opportunities as well.

PrivaSeek CEO Larry Lozon is a former senior vice president and director of General Motors' Cyberworks. In charge of daily operations at the new start-up, he'll no doubt bring valuable experience from lessons learned at GM about how new business modeling can work with shrewd marketing programs in the e-commerce age. Lozon apparently sees the same consumer trends that Davis and authors Hagel and Singer see — and they may have one highly visible privacy advocate already on their side.

Jason Catlett, president of Junkbusters Inc., Glenbrook, NJ, said the growth of infomediaries will bring interesting dynamics to the protection of consumer information and privacy. Junkbusters is a kind of consumer activist infomediary as well. In conjunction with the Electronic Privacy Information Center, Washington, it was able to help bring national attention to Intel's Pentium III processor, which is capable of transmitting a user-identifying serial number.

This technological fact presents many paradoxes around privacy issues, but it conceivably could be argued as a means to help law enforcement officials track marketers of consumer fraud, child pornography or electronic extortion and embezzlement schemes.

Whether enough consumers can be targeted and sold on the idea that an infomediary can make it profitable for them to be taken off certain mailing lists and added to others is yet to be seen. Also unclear is whether the Intel chip will ultimately help or hurt consumers' ability to protect their privacy, let alone be paid for it by an infomediary.

In the meantime, infomediary venture capitalists are sure to take delight in consumers who are swayed by what privacy pundits and marketers are saying to them and about them. For instance, on Junkbusters' Web site, consumers are flatly told, “Most junk doesn't find you by accident. It's carefully targeted based on information about you held in what we call junk databases. To stop junk and to protect your privacy, you need to control the information stored about you in these junk databases.”

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