The War for Customer Data Ends in a Draw

In the Web world, seven years is the equivalent of several lifetimes. In that time, companies start and fail, paradigms shift, and markets collapse. Ideas formulated back in 1995 rarely carry weight today, and their authors should not be judged too harshly in the current light. So, it may have come as a shock to some when Microsoft last week announced that Citigroup has agreed to use its Passport software, apparently validating a seven-year-old customer data concept. Suddenly, its time has come.

Passport’s journey has been an arduous one. In 1995, researchers at the MIT Media Lab developed a collaborative filtering tool that, among other things, would enable consumers to register once for several sites and services. This concept, called Firefly, was quickly funded.

Firefly garnered a lot of press through mid-1997, in part because it addressed one of the ongoing problems in the developing medium — too many sign-up forms. Customer data analysts were quickly learning that registration processes hindered traffic, development, and success. The more questions they asked, the fewer people answered. For content sites, requiring registration and passwords often created more problems than it solved. Amazon.com’s one-click shopping cart and cookie-based authentication were both developed to eliminate the form-filled path between consumers and their desires.

So, an application that combines a universal shopping cart and automatic registration might solve consumers’ problem. Instead of registering at each site they visited, they could register once. Firefly would partner with merchants and content providers behind the scenes.

As with many good ideas, however, the difficulty was in the execution. How does a startup become the standard for customer registration? How does it extend its reach to enough registration-requiring sites to be relevant? Firefly faced a two-front battle: signing up lots of consumers while signing up enough merchants and content sites to gain enough critical mass. It was a chicken-and-egg dilemma: Merchants wanted to partner with a company that already had a lot of consumers in the database, and consumers saw no point in signing up for a service that they could use at only a few merchants.

Firefly had to partner to become ubiquitous. It came as little surprise, then, when Firefly agreed to be bought by Microsoft in 1998.

Being bought by Microsoft did not ensure success. The pains of a startup were replaced by the pains of a grownup behemoth. Though some consumers may not have minded giving their personal data to Firefly, many had problems giving it to Microsoft. Microsoft added to the hubbub by appending wallet technology to the renamed Passport product. Now, consumers could fret not only about someone misappropriating their data but also about someone misappropriating their dollars.

Major software and financial services providers, meantime, had a problem with Microsoft’s insistence that it would manage the universal shopping cart service as a private network. A unique identification and banking system run by Microsoft was not what the market wanted.

More recently, the market produced an alternative to a Microsoft-managed universal shopping cart. Led by Sun Microsystems, several software and banking heavyweights (including Citigroup) formed the Liberty Alliance Project to “support an identity solution for the Internet that enables single sign-on for consumers as well as business users in an open, federated way.” In other words, they wanted a universal shopping cart but didn’t want it to be run by Microsoft.

This debate came full circle when Microsoft itself announced last September that it was comfortable with a “federated” approach to authentication. Last week’s Citigroup announcement further moves Microsoft toward a compromise on open standards — indeed, consumers will need to register with both Microsoft and Citigroup to get them to work together.

The world is moving closer to the realization of a universal shopping cart. Before it gets there, however, one last hurdle will need to be overcome: AOL Time Warner. Though managing to a stay away from controversy, AOL has been developing a universal authentication system of its own. Dubbed “Magic Carpet,” AOL’s system will eventually have to be integrated into the ATM-like universal shopping cart network. AOL, with its 33 million subscribers, will likely have some leverage in this discussion.

Getting a universal shopping cart and registration process will require Microsoft, AOL, Citigroup, Sun, and the other alliance partners to compromise, work together, and share the wealth. The rough outlines of what will eventually take shape are only now coming into focus. Although seven years (and counting) may seem like a long time to wait, this is one idea whose time has finally come.