Buyers want Web privacy

By Anne Millen Porter -- Purchasing, 9/21/2000

In a supremely rational world, every industrial buyer would be participating in one or more public Net marketplaces. For little more than their cost of access, buyers joining Net markets can automate their tasks, communicate seamlessly with suppliers, dramatically expand their sourcing horizons, pool volumes with other buyers, and ultimately drive costs down and service levels up.

But here's the rub: Most purchasing pros see buying in Net markets as akin to broadcasting their purchasing activities to the world. In fact, asked to rate, on a scale of 1-10, their level of concern about privacy in online business transactions, a random sampling of Purchasing readers returns a weighted average rating of 7.6 with 67% putting their concern level between 8 and 10 on the scale.

And this concern may be well placed. Of the Net market makers currently listed in Purchasing Magazine's e-Directory 2000 (starting on page 88S90 of this issue), 77% say they do (or will) track buyers' activities online, compared to just 16% who say they don't follow buyers' clicks and 7% who decline to say.

Nothing nefarious

For the most part, Net market makers appear to have only innocent plans for the buying data they will accrue. Those operating on transactions fee models need it for bookkeeping. Others say they'll use it to improve their sites and to develop more value-added offerings for buyers. For example, aggregated activity reports might allow decentralized buying organizations to standardize their purchases or to negotiate more favorable contract pricing and terms with preferred suppliers. Perhaps the best reason for Net market makers to track buyers' activities is the huge potential for creating specific, valuable market intelligence-about pricing, supply and demand trends-where none has ever existed before. (Editors note: This subject will be explored in depth in Purchasing's Oct. 19 TECH PLUS Edition).

But if their plans for buyers' activity data are truly innocent, Net market makers still have much work to do in allaying buyers' fears about Net privacy. Stephen English, purchasing manager for Film X Inc. in Dayville, Conn., captures the general sentiment with this question: "What's their motivation?

Is data on my procurement just another commodity for sale?" The purchasing manager for a metals firm in Wisconsin thinks Net market makers might be tempted to "sell volume information to suppliers and possibly competitors." Terry Sherwood, purchasing manager for International Speciality Supply in Cookeville, Tenn., suggests that, "When it comes to making a buck, people's scruples can be challenged."

On one hand, purchasing pros fret that leakage of their data will lead to an avalanche of online direct marketing. For example, Jim Maher, Jr., purchasing manager for Young Windows in Conshohocken, Pa., worries about being "bombarded with ads, calls, etc."

On the other hand, quite a few companies have come to view strategic sourcing as a source of competitive advantage and they're worried about what they might be giving away-in terms of competitive secrets-when they buy online.

As one purchasing pro suggests, "Too much information would allow someone to see our total procurement strategy." Likewise, the purchasing manager for a Midwest refinery says, "suppliers or third-party [Net market] hosts would have much to gain with company-sensitive buying habits and strategies."

Large, public Net markets-run by startup companies-may face the biggest hurdles in overcoming buyers' privacy concerns, according to Purchasing's poll. Asked if their concern about Web privacy in business transactions varies according to who hosts a Net market, 58% of buyers polled say it does.

Charles Gelfand, corporate purchasing manager for May & Schofield in Fowlerville, Mich., says he is "more comfortable" with third-party Net market hosts. Likewise, Georgiann Capsey, purchasing manager with Martin Gillet & Co., in Baltimore, Md., thinks third party hosts might be less objectionable because they "may not have as much of a vested interest as buyers or suppliers." But Gelfand and Capsey are part of a small minority that thinks third-party Net market hosts may prove to be the more scrupulous users of buyers' activity data.

W. Lance Gifford, purchasing manager for Pacific Handy Cutter in Costa Mesa, Calif., sums up the more popular sentiment when he says, "I only want to buy from established companies that I know have a vested interest in maintaining privacy." The purchasing specialist for an Indiana-based maker of industrial equipment says, "A known name leads you to believe you can be comfortable with their sites." The director of procurement for a beverage firm in New York says, "Most of the [Net market-making] companies are new and don't have a reputation pro or con on their ability to keep confidential matters confidential."

Big hack attacks

Even the best privacy intentions among Net market makers may not quell buyers' fears entirely, Purchasing's poll suggests. Asked to rate on a scale of 1-10 their concerns about Web security-the idea that proprietary information could fall into the hands of competitors, despite Net market-makers' attempts to protect it-the survey sample returns a weighted average score of 7.9 with 64% putting their concern level between 8-10 on the scale and 42% going between 9-10.

People with an interest in seeing Net markets succeed generally dismiss such data security concerns out of hand (Editor's note: Purchasing will investigate the security issue in-depth for a report to appear in the Dec. 14 TECH PLUS Edition). But the fact that buyers are worried poses an immediate threat to the long-term survival of public Net markets-especially those struggling to establish sufficient transactions liquidity before their cash runs out. Asked what it will take to ease their fears about privacy and security of information in online business transactions, buyers polled by Purchasing make these suggestions:

• Assurances, education. The purchasing manager for a steel company in Wisconsin thinks he may require nothing more than "assurances from service providers and more education on my part about how the systems work." Another buyer says, "Frankly, we need to learn more about the entire process and what safeguards will be present," at various Net market sites.

• Legal guarantees. But while some purchasing pros think more, better information might ease their fears, a majority of buyers polled by Purchasing wants Net market makers to accept full legal responsibility for protecting information. For example, one purchasing pro would like to see, "Policies written by the [Net market-making] companies stating liability if privacy is infringed." Gelfand of May & Schofield wants to see "privacy guarantees with penalties." James Koronkiewicz, purchasing and safety manager and mill coordinator for Badger Paper, in Peshtigo, Wis., would like to see "confidentiality guarantees that are backed financially." And Elayne Garver, purchasing manager for Edron Fixture Corp., will be looking for "legal terminology on the site," plus the "ability to sue."

• Independent certifications. Some purchasing pros think such legally binding promises may not go far enough. For example, English of Film X would like to see independent third parties certifying the privacy and security practices of Net market makers. These third parties, he says, should have "no vested interests" in the Net markets themselves as well as "full liability for all certifications."

• Laws. Another small group of purchasing pros hopes Washington will eventually step in to regulate Net privacy and security issues in the business realm. Sherwood of International Speciality Supply would like to see "some type of government policy guaranteeing privacy and defining misuse penalties." Gifford of Pacific Handy Cutter calls for, "Public debate, public laws to protect privacy." By creating "a supportive overall market expectation," Gifford believes that "privacy will become standard."

• Time. Finally, the purchasing pros surveyed by Purchasing say they're simply going to need time to develop confidence based on Net market makers' real track records for protecting both privacy and security of the information they capture at their Web sites. Maher of Young Windows thinks buying online may prove to be "no different than using a credit card to dine." To ease his mind, however, he'll be looking for "more usage" plus success stories from his peers. Marty Davenport, purchasing agent for IPC Plastics, in Houston, Texas, wants to see "documented proof or historical data that absolutely shows that information is protected."