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Despite New Laws, Expect More Sites Dedicated to Online Shopping for Kids

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The relatively new site Virtual Piggy looks to benefit from changes in the COPPA law.

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The Laws Are Too Tough, or Not Tough Enough

Not surprisingly, not everyone is happy with the new COPPA laws. The Wall Street Journal reports that several members of Congress, such as Senator John D. Rockefeller IV, will push for stronger online privacy regulations. (Rockefeller is leading the Senate's extensive investigation into the data industry.) Jeffrey Chester, executive director of the Center for Digital Democracy said that "the FTC's decision was a step in the right direction but left loopholes for companies to mine kids' data inappropriately."

For her part, Webber says she holds a favorable view of the new rules, calling them "common sense laws." But she also describes the amendments as "softer" than expected, saying she had anticipated "harder" changes for the industry.

In particular, Webber was surprised that the FTC didn't make it more difficult to obtain parental consent, since e-mail alone can easily be faked. She offers the example of a child creating an e-mail account and claiming the account belonged to his or her parents to play a game on Disney (NYSE:DIS) without his or her parent's knowledge and unbeknownst to the website. Indeed, many parent advocacy groups had actually pushed for removal of e-mail as a legal method of obtaining parental consent, according to Webber.

Although the FTC originally worried about the ease by which children can circumvent this parental check, it found no evidence of harm caused by this method and decided a change in the law would have been "inappropriate," placing a heavy financial burden on the industry. Plus, apps and websites that procure consent via e-mail can only use the data for internal usage and can't legally share the information with third parties.

Webber predicts that adjusting to the new advertising rules will prove most burdensome for websites aimed at children and online retailers. She explains, "The FTC will not go after the advertisers; it will go after the website operators. This means websites that do cater to children will either have to eliminate advertisements or scrutinize the ads that go on their website to make sure the ads don't solicit children for identifiable information." The Wall Street Journal article also quotes Joe Potter, president of the Application Developers Alliance, who said "that talented and responsible developers will abandon the children's app marketplace." According to ChannelNewsAsia, the mobile application industry grew by by 68% from $8.5 billion in sales to $14.3 billion last year (for all sites, not just those aimed at children), but stricter regulations will slow down the burgeoning industry.

James Ryan, Vice President of Marketing at AnchorFree, a provider of Internet security software, tells Minyanville that developers need to take more responsibility with the way they collect data. He anticipates further "governmental and parental backlash" in the form of additional legislation aimed at app developers, particularly against developers of kid's apps and kid's developers. Last month, the FTC ordered data brokers to reveal the information they have collected on online consumers.

Webber and many others believe that larger app providers should be more tightly regulated when it comes to children's apps. Webber points to Apple (NASDAQ:AAPL), which has found itself with some lawsuits related to apps in its stores that encourage children to input identifiable information and participate in unreasonable transactions. The FTC, however, exempted companies like Apple and Google (NASDAQ:GOOG) after both companies launched serious lobbying efforts. (Apple, for example, met with FTC officials five times in the fall of last year to challenge the original regulation that would hold it accountable.) Webber says, "Some of the biggest companies in the world are still able to get around the laws."

Twitter: @ChrisWitrak
Position in INTC.
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