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October 2000
The Tech Industry: The New Target of Consumer Activism "Astonishingly enough, in a relatively short time, consumer activists have successfully taken on some or the largest technology companies in the world and scored substantial victories."
As opposed to typical issues such as consumer product safety or abuse of the environment, the information age has spawned consumer activism targeted at technology firms. The actions are the same, petition drives, boycotts, letter-writing campaigns, and lawsuits. As opposed to the targets being oil companies or toy manufacturers, they are software companies and Internet providers. Astonishingly enough, in a relatively short time, consumer activists have successfully taken on some or the largest technology companies in the world and scored substantial victories. A Telecom Goliath Consider -- AT&T versus the city of Portland, and Multnomah County, Oregon: When, in 1998, AT&T sought to merge with Telecommunications, Inc. (TCI), a cable TV company, consumer groups prevailed upon city officials to insist that AT&T open its high speed cable access to all Internet service providers. They, in effect, tried to use the merger to force AT&T to open local Internet access service provider. AT&T refused and went to Federal District Court to overturn the city ruling, but something remarkable happened -- the company lost. Arguably, a high-tech Goliath fell to a consumer-activist David. Portland City Commissioner Erik Sten, commented, "The AT&T threat is an issue of national significance that could very well affect the quality of communications for decades to come. No company should be able to threaten local communities for disagreeing with their corporate desires." Although AT&T finally prevailed in a June 22 ruling by the Ninth Circuit Appeals Court, the case has cost the company dearly. Portland's initial victory spawned similar movements for open access across the country. After spending millions of dollars in legal fees, millions more on media and lobbying campaigns, for AT&T the open access issue is still an open question. What's more, during the time that AT&T has been fighting for its broadband monopoly, the company's stock price has steadily declined. Consumer Privacy Advocates and DoubleClick When the Internet marketing company DoubleClick, in late 1999 announced the purchase of Abacus Direct, a firm that warehouses data on the buying habits of consumers, activists sounded the privacy alarm. Concerned about the possibility that DoubleClick would compile and sell specific marketing information about individual Web surfing consumers, activists immediately organized to protest the potential of surfing sites without anonymity. Complaints were filed with government agencies, in court and against the company directly. Jason Catlett, President of Junkbusters, warned, "By synchronizing cookies with name and address from e-mail, registrations and e-commerce transactions, the merged company would have a surveillance database of Orwellian proportions." ("Cookies" are small packets of specific personal data placed on users' computers by Web sites they visit; the expressed purpose of creating cookies is to "personalize" users' shopping or informational visits to those sites.) The market capitalizatiaon of DoubleClick, a one-time Internet stock darling of momentum investors, shrank from $16.5 billion to $4.3 billion in the weeks following that corporation's consumer debacle. The consumer attack was both speedy and effective: DoubleClick CEO Kevin O'Connor, after face-to-face meetings with consumers, Federal Trade Commission members and the New York Attorney General, was forced to admit, "It is clear from these discussions that I made a mistake by planning to merge names with anonymous user activity across Web sites, in the absence of government and industry privacy standards." Just weeks after announcing the Abacus merger, DoubleClick saw fit to alter its business strategy, shelving the plan to marry individual identities with marketing data, and proposing new privacy standards itself -- the company unveiled a five-point privacy initiative to educate consumers, and created a privacy advisory board with an executive-level company officer in charge. In addition, DoubleClick, which estimates it touches 80 million individuals with its online ad network, has had to make it possible for consumers to visit its Web site and opt out of its tracking system -- the company guesses that by early summer 100,000 Internet surfers had already chosen to do so. The damage to the company's stock price drove the point home even more dramatically -- the value falling from 135 to the mid-30s in the first eight months of the year, during the dot-com stock market crash. Almost entirely the result of consumer activism spun out of control, the company lost customers, had to abort an expensive business strategy, and suffered a steep decline in its market capitalization. A Costly One-Click Last year, when Amazon.com CEO Jeff Bezos applied for a pair of software patents that seemed to challenge the free and open nature of Web surfing, consumer activists reacted instantly. Internet chat room discussions bristled with outrage, activists sent hundreds of e-mails, and some proposed boycotting Amazon.com altogether. Tim O'Reilly, a prominent publisher of computer books, posted an open letter on his Web site denouncing Amazon, and scooped up 10,000 protest signatures in barely a few days. O'Reilly called Amazon's attempt to claim a proprietary right to software tools already in wide use an act of "ill-will with the technical community." Consumer activists considered Amazon.com's claims for common usage patents amount to a hoarding of technology, in violation of Internet tradition. Bezos and the company refused to cave in and eventually won the patents in September 1999. But in response to the consumer outcry and the calls for a boycott, Bezos drafted an open letter in which he himself called for a change in the patent laws. Bezos proposed that patent law "should recognize that business method and software patents are fundamentally different than other kinds of patents." Consumer activists who originally forced the issue remain unappeased. Richard Stallman, president of the Free Software Foundation and a ringleader of the backlash, launched a boycott against the company, proclaiming that "foolish government policies gave Amazon the opportunity -- but an opportunity is not an excuse... The ultimate moral responsibility for Amazon's actions lies with Amazon's executives." And, as a result of the privacy issues raised by Amazon technology, the company is now also the object of legal proceedings. U.S. District Judge Marsha J. Pechman in Seattle has ruled that the estimated tens of thousands of class members can go ahead with a class action lawsuit against Amazon.com, on the grounds of injured privacy. As if that were not costly enough, Amazon.com stock by summer's end was down nearly 50 percent from where it had stood on January 1 from around $76 to under $40. An Expensive Download Another dramatic example of consumer outrage turned organized activism is the protest over the America Online's 5.0 software. AOL's 5.0 upgrade, released in the fall of 1999, led to hundreds of complaints that downloading the software maliciously disrupted their computer configurations. Specifically, they claimed their computers were reconfigured to render them unable to communicate with Internet service providers in competition with AOL. Company spokesman Rich D'Amato insisted the 5.0 upgrade is "designed to provide a more stable online environment, but doesn't prevent users from accessing the Internet through another provider." The problem, he suggests, is that some consumers, in installing the new software, appear to have unwittingly clicked "yes" when asked if they wanted to make AOL their "default ISP." Notwithstanding the company's efforts to downplay the issue, computer users complained bitterly. "I got calls from little old ladies who were literally in tears" over the AOL 5.0 issue, recalls Jason Reynolds of the Oregon Consumer League. In addition to massive e-mail, telephone and chat room protests, consumers poured into court to make their case against the world's largest ISP. Since the original national class action lawsuit filed in Federal District Court in Alexandria, VA, February 5, and a companion state class action filed February 17 in Washington state, there have been dozens of individual suits brought against AOL. This past summer Florida consolidated a number of lawsuits in that state -- a move that brings the issue closer to trial. Whether or not AOL ultimately prevails (and some consumer activists insist the company will lose in court), the legal fees alone will be horrendous, not to mention the negative impact on customer goodwill. Ironically, some of the statutes cited in the AOL legal actions fall under the federal computer crimes law normally employed by U.S. attorneys prosecuting hackers. A September 27, 2000 story in the Washington Post reported, "The latest challenge to America Online Inc.'s $183 billion takeover of Time Warner Inc. isn't another fabulously wealthy entertainment company. It's not another high-powered politician. Nor is it another storied dot-com. It's a grandfather of four from Florida named Richard Quigley. Like others who have spoken out about the merger since it was announced nine months ago, Quigley, an assistant city manager for Daytona Beach worries about what the creation of AOL -Time Warner means for the future of the Internet, whether the behemoth will come to dominate the online world and change its freewheeling nature forever." Ironically AOL, one of the biggest opponents of AT&T, which also funded lobbies against AT&T is now having its merger challenged by a very motivated Mr. Quigley in Florida. The battle in Florida underscores how a provincial issue of open access has mushroomed across the country, inspiring localities to challenge the authority of the Federal Communications Commission and Congress. "We're shaking the largest companies in the world, their scenarios of the future," said a defiant David Olson, Director of the Portland Office of Cable Communications and Franchise Management." Recent events have made the point that consumers have the confidence, tenacity and momentum to challenge technology companies. We will have to wait and see how soon technology companies are able to assuage dissatisfied consumers before activists' ideas are put into motion, promulgating expensive court and public relations quandaries. Released: October 23, 2000 © Copyright 2000. Kenneth Brown. All rights reserved.
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