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Creating a fair playing field for both online and offline businesses will require some level of Internet taxation and the ability of online companies to gather personal user data for advertising purposes, says Sen. John F. Kerry (D-Massachusetts).

To help Web businesses survive and thrive, Kerry says, he plans to push for a national "opt-out" privacy policy for all Web-based transactions except those involving financial data and medical information.

Kerry says he plans to reintroduce a bill he cosponsored with Sens. John McCain (R-Arizona) and Barbara Boxer (D-California) that would allow Web-based businesses to gather personal information on Internet users for advertising purposes.

"What many Americans don't realize is that in the offline world, they have already lost most of their privacy," Kerry said during a recent breakfast meeting of the Massachusetts Software & Internet Council. "If privacy is a right, and several Supreme Court cases suggest that it is to an extent, then we have to make certain that the offline world and the online world are thinking about privacy in the same context."

Are Online Retailers Hamstrung?

Bricks-and-mortar retailers that now use direct-mail advertising and other methods to reach customers have already invaded the privacy of most Americans, Kerry said. That leaves online businesses at a disadvantage if they can't collect information about their customers' buying habits.

"We shouldn't take it as far as DoubleClick did," Kerry said, referring to secret data collection practices by the online advertising company that drew fire from privacy advocates last year. But forcing online businesses to live under "opt-in" rules, where information can be collected only after users actively provide it, would give traditional businesses an unfair edge.

Kerry later added that "for commercial transactions, opt-in is more cumbersome" and would hurt competition by online businesses. Forcing online companies to follow such a policy just to stop the cyber equivalent of junk mail, when similar rules aren't enforced in the bricks-and-mortar world, would be unfair.

The senator adds he would exclude financial data and medical information from the law, meaning collection of that information would be barred unless users gave prior permission. Such data-gathering practices would be subject to a "tougher standard," with the Federal Trade Commission responsible for enforcing the rules. All companies would have to post a clear and understandable privacy policy on the first page of their Web site.

E-Commerce Taxes 'Inevitable'

Regarding online taxation, Kerry told the standing-room-only crowd that he expects online transactions to eventually be taxed. He didn't know what form the tax would take, but said it would have to be a system endorsed by all 50 states.

He prefaced his prediction by noting he's an original supporter of the current moratorium on Internet taxes.

Kerry said online taxes will be needed because too many local governments are being hurt by lost revenues while too many bricks-and-mortar companies face an unfair advantage from online businesses.

Also speaking at the meeting were Bob Davis, former chief executive officer of Lycos, and Ellen Hancock, CEO and president of Exodus.

In her address, Hancock blasted California for having ignored signs of a worsening energy crisis. But she says Exodus has no plans to close any of its facilities there. "We absolutely intend to stay in California," she said.

Davis, now a venture capitalist, told the audience to stop thinking of the Internet as an industry unto itself and begin seeing individual companies in terms of their own merits and drawbacks. He called this a great time to be a venture capitalist because the old business tenet of "buy low, sell high" still applies.