Electronic commerce: Cookies that tell the world your fortune

Information from a tiny file implanted in your computer gives companies the low-down on your lifestyle. Ian Fried reports

As chief information officer for Virgin Interactive Entertainment, Jody Giles knows a little something about e-commerce. But his real lesson in Internet marketing came as a consumer, after he went online and bought a T-shirt of blues legend Muddy Waters.

A few weeks later, an e-mail arrived from the virtual shop. Seemed they had just got in some new Muddy Waters T-shirts. And, oh yeah, some Stevie Ray Vaughn ones, too. Tempting, but Giles took a pass.

Soon another e-mail arrived, offering a trivia contest where the first right answer would win a free T-shirt and a 15 per cent discount. It was a blues question - and an easy one to boot. Sure enough, Giles was the first with the right answer.

Giles wondered how he could be so lucky. So he called the store and found out. "It was a loaded question and it was very targeted," Giles said. "It wasn't going to the whole world - it was going to me."

And so it goes on the Internet.

Or at least it can. Technology allows Internet retailers to monitor the patterns of those who shop, but the software needed to process the data is still in its infancy. So far, most online retailers say they make little use of the data they collect. Still, the possibilities are staggering.

Already, there is a great deal of information being collected, even if the pieces are, for the most part, not being put together. The Minneapolis Star Tribune took a random individual and collected all the information they could about him using the Internet. They found out his address, phone number, birthplace, favourite type of beer, occupation, employer, favourite restaurants and how he felt about the state of Indiana (socially repressive).

"These tools are so theoretically powerful that I could ask you 10 questions about movies and figure out your sex life, or whether you like pepperoni pizza," said Stuart Skorman, founder of the Internet movie retailer Reel.com. Skorman was an early pioneer of so-called collaborative filtering - using consumers' data to offer targeted marketing. In the 1980s, Skorman set up kiosks in video stores that attempted movie-matchmaking.

The idea of using technology to create one-to-one relationships has long been a goal of Internet marketers. But Skorman admits that today's offerings - including the ReelGenius feature on his site - have yet to offer much of value to the consumer.

Today's tracking technology relies on something called a "cookie", a tiny file implanted on the user's hard drive. While a cookie doesn't identify the name of the Internet user, it can identify when that individual returns and what they are browsing. That information can be used to make an educated guess as to what the consumer is interested in. It is also a potential gold mine for the host site, which suddenly can offer advertisers a clear profile of those being reached.

But privacy experts say that when most Net users get a cookie, they have no idea what they are swallowing. "The whole tracking process is not consensual and it needs to be genuinely so," said Simon Davies, head of Privacy International, a London-based watchdog group.

Accepting cookies has become the price of entry to many of the Web's juiciest offerings, but Davies says that, when they are actually asked to provide information, Europeans are often less willing to share.

"In the US, there is a feeling that the request for disclosure of data is a company's right, whereas here it's an imposition," he said. "The companies in this part of the world are not willing to tempt fate by pushing things too far."

While Internet retailing has grown up in the US, Europe may be leading the way towards privacy standards. In October, the EU is set to initiate a data privacy policy requiring parties collecting data from member states to be from a country with privacy protections equal to that of the EU. Currently, many of the protections being proposed do not exist in the US, where most e-commerce data is collected. But Davies foresees a stiff fight by the US - and possibly a long delay - before any action is taken. "There will probably be a honeymoon period of six to eight months where people like me will lodge complaints," Davies says.

There are exceptions to the rule, including data provided in return for a service. "However, the situation is by no means clear-cut when the individual has not himself taken the initiative," says Susan Binns, of the European Commission. "Or where he is left in ignorance - or with only an imperfect understanding - of what happens to the data he provides."

But users need not wait for government action. Browsers such as Navigator or Internet Explorer can be set not to accept cookies. Consumers can also choose only to visit sites with an explicit privacy policy or those allowing users to opt out of any marketing efforts.

"There are many Web sites that users can register on, or buy from, that protect users' privacy," said Deborah Kania, co-author of the Internet Guide to One-To-One Web Marketing.

Skorman says such filtering technology is like any powerful tool, it must be used properly. "A hammer can pound a nail and build a house," he said. "Or it can kill somebody."