The Economy

Good Week/Bad Week: Epoxy on Your House

Web sites and Internet cafes look to wring cash out of freeloaders; freeloaders look to ring ACLU collect. Plus: at Citibank, tales of the unencryp...
John GoffJune 10, 2005

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1. Citibank

Spyware. Malicious code. Trojan horses. Keytracking. Keylogging. Keye Luke.

Welcome to the wonderful world of digital.

On Monday, CitiFinancial, the consumer finance wing of Citigroup Inc., began informing nearly 4 million customers that it had lost computer tapes containing information about their accounts. According to the parent company, the tapes in question were lost by a courier en route to a credit bureau.

In a hastily called press conference, officials at the bank did not indicate why the customer’s personal data was being sent to a credit agency, or why Citibank requires loan applicants to divulge personal information if the company cannot guarantee the information will be kept confidential. The bank executives also failed to discuss why they think it’s OK to share sensitive personal information with other business or operating units. When asked by reporters to address those issues, a spokesman for Citibank said the bank did not condone the use of steroids in any form.

In a statement handed out to reporters during the press gathering, management at CitiFinancial indicated it “had no reason to believe that this information has been used inappropriately, nor has it received any reports of unauthorized activity.” The bank also noted that “it would offer free checking to any customer who suffers a financial loss in excess of $5,000 as a result of the data loss.”

The CitiGaffe was just the latest in a series of data thefts and network security breaches at marquee U.S. business. Last month, media giant Time Warner reported that computer backup tapes containing data on 600,000 individuals were lost by an outside data storage firm. Also in May, about 100,000 customers of Wachovia Corp. and Bank of America Corp. were notified that their financial records may have been stolen by bank employees and sold to collection agencies. In addition, officials at Sheboygan First National reported that tellers at one branch had “erroneously given out free pens to customers who, based on internal analysis, should have received clocks.”

Back at Citibank, company officials were busy trying to minimize the fallout from the embarrassing data loss. Said one bank executive: “We deeply regret this incident which occurred in spite of the enhanced security we require of our couriers, including big locks for their bikes and double-stitched backpacks. Realistically, there’s not a lot more we can do.”

In a related story, on Tuesday, officials at CitiFinancial announced it would begin encrypting customer data in July, a move that was immediately lauded by consumer rights groups and computer programmers whose unemployment runs out June 30. Other U.S. banks have also contemplated encrypting consumer information, but few have gone ahead with the process. Said one insider at a major American bank. “It’s very expensive, very expensive. We start encrypting data, you can forget the free calendars.”

2. The Coffee Generation

Apparently, making money off the Internet is proving nearly impossible for many businesses. In recent months, executives at several major media outlets have admitted publicly that readers remain reluctant to pay for Web-based offerings — even though those same readers prefer the Web to print. Indeed, some publishing insiders privately admit that they may never turn a profit with their dotcom units. One industry executive who requested anonymity, Bill Shankley of Dow Jones Interactive Media, told GW/BW: “We’ve done everything we can do, everything. We’ve even put little pictures of locks next to stuff to fool people into thinking it’s really important.” Adds Shankley: “Maybe we should use duckies. People like duckies.”

A recent survey underscores the difficulties many online publishers — and some ducks — are facing. According to the poll, which was conducted jointly by the Pew Foundation and AMS (Americans for More Surveys), 71 percent of Internet café patrons said they had never paid for any kind of Internet content. Of that group, nearly a third indicated they might pay for some Internet content as long as it didn’t have pictures of locks next to it. In addition, about 10 percent of the respondents said they were “not likely” to pay for content, but would gladly pay for articles and stories.

Industry watchers say this “culture of free” is beginning to pervade other business sectors as well. And in fact, reports from the West coast this week indicate that some coffeehouse owners in Seattle are contemplating charging customers for use of in-store access to the Internet. A wireless access point, which is called Wi-Fi by network equipment makers and Whey-Fi by cheese makers, allows cafe customers to surf the Net, get stock updates, or write whole screenplays without once getting up to actually order any coffee.

Faced with declining per-customer revenues, some shop owners have instituted cover charges, requiring patrons to purchase a single beverage before hooking up to the Internet. But shop owners say such a policy doesn’t guarantee an increase in sales. Ongoing research at the University of Spokane’s John Beresford Tipton School of Management would seem to support that assertion. According to the study, which tracks and analyzes the purchasing data from 15 Seattle area coffee shops, farm animals are five times more likely to pick up a dinner check than the average patron of an Internet cafe.

Still, some coffee-shop owners are convinced that charging for Web access could backfire. “Wi-Fi users probably spend less per hour than other folks, but people for the most part don’t abuse it, and they keep coming for it,” says Jody Hall, who runs two coffee shops in the Greater Seattle metropolitan area. Others agree. Michael Anthony, owner of local java joint Raise the Diastolic, also worries about the fallout out from pulling the plug on free Wi-Fi service. He says some of his patrons have attempted to enlist the help of the American Civil Liberties Union to fight what they see as a discriminatory practice. “That would certainly strengthen their case, but so far, the ACLU has refused to reverse the charges.”

But Len Moscowitz, co-owner of Caff-a-Nation, got so fed up with Web surfers spending time in his cafe without spending money that he shut down Wi-Fi service on weekends. Apparently, the move did not sit well with some of Moscowitz’s regular patrons. In May, a radical group calling itself the Front for Free Refills broke into the cafe, poured rubber cement into several phone jacks, then spelled out “EPOXY ON YOUR HOUSE” in coffee beans on a dual-frothing espresso maker. “They’re a high-strung bunch,” said one insider. “High-strung, and uncommonly pale.”