A team of researchers at Vanderbilt University finds that consumer trust is fundamental to electronic commerce.

Despite the impressive recent growth in online shopping, consumers' fear of divulging their personal data represents a formidable barrier to the Web's ultimate commercialization.^[1] Concerns over technological incompatibilities and a dearth of business models are real. But fundamentally, consumers simply do not trust most Web providers enough to engaged in "relationship exchanges" involving money and personal information with them. Consumers' concerns over privacy span the dimensions of environmental control (e.g., protecting a credit card number from malicious behaviors) and secondary use of information (i.e., how the information obtained will be used). Unlike traditional retail environments in the physical world, such perceptions concerning information privacy on the Internet have a striking negative influence on consumer willingness to engage in relationship exchanges online.

In electronic media -- as opposed to print or physical media -- consumers are making it clear that their need for control and protection is intense. A whopping 87 percent of Web users think they should have complete control over the demographic information Web sites capture, and over 71 percent feel there should be new laws to protect their privacy online. The behavior of today's commercial Web providers is responsible for their attitudes. Many cybermarketers lack faith in consumers, and some treat them poorly, in ways reminiscent of unscrupulous practices in the physical world. Consumers' response is distrust.

Despite well-documented resistance among consumers, our research suggests that they are not unsophisticated. Online consumers do realize that personal data is important to Web marketers, and perhaps surprisingly, they report being interested in providing such information. Over 90 percent would, in principle, provide demographic data to Web sites. And over 60 percent recognize that Web sites need information about their visitors to market their sites to advertisers.

Consumers do not, however, view their personal data in the context of an economic exchange of information, as many commercial Web providers believe. Instead, Web consumers report wanting another type of exchange -- characterized by an explicit social contract executed in the context of a cooperative relationship built on trust. The enabling condition is clear: Over 72 percent of web users said they would give Web sites their demographic information if the sites would only provide a statement regarding how the information collected would be used. Control over secondary use is likely to be a sticking point: Over 80 percent of Web consumers simply do not want Web sites to resell their personal information to other businesses.

The Internet threatens consumer information privacy in new and extreme ways. The interests of buyer and seller converge in issues related to security. But the secondary use of information is a source of conflict. Data mining and data warehousing opportunities are being exploited as never before. Online shopping potentially allows commercial Web providers to collect much more detailed consumer behavior information and to follow individual level behavior. Despite growing consumer awareness of the potential for customization, the practice generally proceeds without explicit consumer permission or knowledge. It should come as no surprise, then, that most consumers avoid engaging in relationship exchanges online.

Ultimately, the most effective way for commercial Web providers to develop profitable exchange relationships with online customers is to earn their trust. The way is simple -- albeit a radical departure from traditional business practice. Trust is best achieved by allowing the balance of power to shift toward a more cooperative interaction between an online business and its customers. This means recognizing consumers' rights to data ownership on the Internet, in particular, opt-out, informed-consent policies in computer-mediated environments. Eventually, the industry should accede to consumer demand, but it is likely that U.S. federal regulatory effort will be required.

^[1] The findings described in this essay are based on the authors' analyses of two biannual surveys: the spring 1997 Nielsen Media Research/CommerceNet Internet Demographics Study [http://www.commercenet.com/research/stats/] and the 1997 Georgia Tech Graphics, Visualization, and Usability Center's GVU 7th WWW User Survey [http://www.gvu.gatech.edu/gvu/user_surveys/].

Released: April 22, 1999
iMP Magzine, http://www.cisp.org/imp/april_99/04_99hoffman_insight.htm

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