Privacy Premium Doesn't Faze Buyers

We know now that users will stay away from sites that have had a security breach. But will they pay more to buy from sites that promise to do a good job of protecting their privacy? A new study says they will.

Researchers at Carnegie Mellon University tomorrow will present the results of a study in which online users were given the opportunity to purchase the same items from different Websites that displayed varying privacy policies. On average, the test subjects were willing to pay 60 cents more on a $15 purchase if they felt a site's privacy policy matched their needs, the researchers reported.

"We wanted to test a hypothesis that if online consumers could easily understand the privacy policy of the sites they buy from, they would be willing to pay more for the sites that do the best job of protecting that privacy," says Lorrie Cranor, an associate research professor of computer science, engineering, and public policy at CMU, and lead author of the study.

For years, e-commerce experts have been buffaloed by conflicting research about users' attitudes toward privacy, Cranor explains. "On one hand, there have been many studies in which respondents say they care deeply about their privacy," she says. "On the other hand, there have been lots of studies in which online respondents have been willing to give up their personal information for a candy bar or a few dollars."

Some experts have postulated that this paradoxical behavior simply shows that users don't know how to read privacy policies or rate the practices of the sites they visit, Cranor notes. "Consumers aren't going to wade through 10 pages of legalese to find out whether the site sells its user data to others," she says. "It's not that they don't care, it's just that the cost of figuring it out is too high."

To test this hypothesis, the CMU researchers asked users to make online purchases through Privacy Finder, a special search engine developed by Cranor and her colleagues. Using the industry standard Platform for Privacy Preferences (P3P), Privacy Finder harvests data from a Website's privacy policies and matches it to a user's preferences.

If a site's privacy policy meets all of the user's preferences, an icon on the user's screen shows up in green. If not, the icon appears only partly in green, or with no green at all.

After getting a short explanation of what the green boxes meant -- for example, that a particular site does not sell its users' data or use it for telemarketing -- many of the test users chose to purchase their products from sites that showed up in green, even if those products were slightly more expensive. On average, the users paid about 60 cents more than the lowest price in order to get the privacy assurances on two $15 purchases.

If no icon was shown, the test subjects tended to simply buy from the site that had the least expensive option, according to the study.

The CMU research team is planning to test the idea in a larger laboratory study, and eventually, in the field, Cranor says. But the initial results indicate that companies with strong privacy policies could be using them more effectively to separate themselves from the competition.

"If you don't share or sell your users' data with others, you should put that in one sentence, in big letters right there on your home page -- not in some long document that nobody is going to read," Cranor advises. "The only reason for hiding your privacy policy is if you have a bad privacy policy."

More than 20 percent of e-commerce sites are now using P3P, a technical standard for creating machine-readable privacy policies, according to CMU research. P3P extracts privacy information written in XML, making it easier for devices to quickly determine whether they may be dealing with a server that doesn't do a good job of protecting their privacy.

"We're seeing a pretty good uptake of P3P in the major Websites," Cranor reports. "What's missing is a way for users to somehow tap into that data to find out what they want to know about a site's privacy."

Privacy Finder accesses that data and displays it as a simple icon that consumers can use to determine whether a site may use their data in an objectionable way. The search engine is available to any consumer who wants to test it out.

Over time, the CMU researchers hope that major search engines might adopt the Privacy Finder technology. "We've pinged them, but so far they've shown only a little bit of interest," Cranor says.

— Tim Wilson, Site Editor, Dark Reading