For Amazon, Honesty May Not Be the Best Policy

To Amazon.com, it seemed like a good idea: to be up-front with its customers and put to rest latent fears that it might share their shopping habits with others. Perhaps it would set an example for privacy disclosures across the entire e-commerce world. So, Amazon sent an e-mail notice to millions of its customers, alerting them of its new privacy policy -- a detailed set of self-imposed guidelines that cast Amazon as the good guardian of personal data.

But the company's effort to look like a responsible citizen seems to have backfired. By saying its new policy has dozens of loopholes that allow Amazon to share consumers' shopping habits with others, two prominent watchdog groups -- the Electronic Privacy Information Center and Junkbusters -- cut their ties to the giant retailer Wednesday. "Unacceptably weak," charges Junkbusters founder Jason Catlett in an open letter to Amazon CEO Jeff Bezos.

That wasn't the only irksome issue pitting Amazon against its customers this week. After coming under attack from irate shoppers, Amazon decided to offer refunds to customers who had paid more than others did for popular DVD movies during a pricing test. And after a separate pricing snafu that mistakenly offered DVDs at steep discounts, Amazon told shoppers who had taken advantage of the discounts that they could either pay full price or have their orders cancelled.

These aren't the kind of issues Amazon is eager to highlight, as it tries to bolster consumer goodwill ahead of the crucial holiday season. And they aren't ideal topics of conversation for company officials preparing for next week's annual meeting with Wall Street analysts, many of whom are becoming increasingly skeptical about Amazon's business prospects.

"They are very much in a fish bowl, and everything they do is going to be watched," says Lauren Cooks Levitan, an analyst with Robertson Stephens.

The privacy dispute could get uglier. Junkbusters and EPIC have won battles against industry giants such as Intel Corp. (INTC) and Microsoft Corp. (MSFT) , and are likely to turn up the pressure on Amazon. And Thursday, U.K.-based Privacy International joined the chorus of protests.

"Amazon had for many years said they would not disclose information to third parties," remarks Marc Rotenberg, EPIC's executive director. "Now they say they reserve the right to do that. We feel that companies can't move the bar wherever they want. We think they have broken their trust with consumers."

The new policy allows Amazon to share information with affiliated companies, compare e-mail lists with other businesses, build customer profiles by obtaining information from other sources and exchange data with others to avoid fraud risk, said Dave Kramer, Internet law specialist at Wilson Sonsini Goodrich & Rosati. "It is more explicit and much less restrictive," he adds.

Catlett also criticized Amazon for removing a feature that allowed shoppers to opt out by sending an e-mail to never@amazon.com, guaranteeing that their data would never be shared with anyone. "In the old system, you could opt out of all future sharing," Catlett says. "Now you don't have that ability."

Both Catlett and Rotenberg note that Amazon hasn't yet violated anyone's privacy. But Amazon spokesman Bill Curry said the old policy left open the possibility of Amazon sharing information with others in the future. "This is a tighter, more restrictive policy than the previous one," Curry says. "We have set a new standard for disclosure."

Jennifer Ray, an attorney at Brobeck Phleger & Harrison, agrees, noting that the new policy does a good job of following guidelines from the Federal Trade Commission for full disclosure.

Ultimately, it will be up to consumers to decide. Time and again, Amazon has shown it is willing to try new things and pull back when customers demand it. "With the DVD [pricing test], they clearly tried something and because of the negative press, they walked away from it," says Daniel Harris, a partner with Brobeck, Phleger & Harrison. "With the privacy policy, it is possible they might do the same."

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