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New app rules worry developers

Federal Trade Commission to beef up privacy shields

– A cellphone game for kids about U.S. geography, “Stack the States,” gets rave reviews from parents. Its creator, Dan Russell-Pinson, considered making the 99-cent app better by adding a feature to allow children to play online against one another. But with the Federal Trade Commission issuing more stringent online child privacy rules, he’s not even pursuing the idea.

“It would require all kinds of data sharing,” said Russell-Pinson, founder and sole employee of Freecloud Design in Charlotte, N.C. “I would be kind of afraid to do that.”

The software industry is bracing for new regulations that it says will stifle creativity and saddle small businesses with legal and technical costs to ensure their cellphone apps don’t run afoul of the rules. The changes, which the FTC will announce today, would update a 14-year-old law prohibiting the collection of personal information from preteens. It raises these questions: What is the value of a child’s privacy on the Internet, and who should pay for it?

Businesses said they fear that under the trade commission’s proposal, routine transfers of data that pose no threat to a child’s safety will be treated the same as the improper gathering of information that can be used to create detailed user profiles that are highly valued by advertisers. Responsible software developers will err on the side of caution and the result will be less kid-friendly content available on the Internet, they say.

The FTC’s chairman, Jon Leibowitz, defended the government’s approach. “When you are talking about children, you have to give the benefit of the doubt to privacy,” he said last week on Capitol Hill.

The cost of the changes to developers just selling educational apps for kids on Apple’s iTunes store could be up to $271 million – nearly 100 times what the FTC has projected for all the businesses it expects to be newly covered, according to the Association for Competitive Technology, a Washington-based trade group that represents small and midsize software development companies. The FTC’s estimate is “laughable,” said Morgan Reed, the group’s executive director.

An outlay of several thousand dollars to design the required privacy policy for an app is small change for larger, established companies. But for the bulk of developers, that’s a lot of money. Most have only a few employees and operate on tight profit margins, Reed said.

Russell-Pinson said he can afford the expense now. But two years ago, when he was starting his business, he would have been in a real bind. “I didn’t even make $10,000 on my first three apps,” he said.

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