In September, 1996, a young man named Naveen Jain held court during a cocktail reception at the InfoCommerce Conference, telling a large group that his six month old start-up company, in his humble opinion, was worth $25 million. Most people smiled indulgently at this audacious statement. It turned out that Jain was wrong, very wrong. Jain's company, InfoSpace, an early dot-com IPO, commanded a market cap of nearly $40 billion just four years later.

Jain left InfoSpace in an acrimonious parting in 2003, and promptly launched a new venture called Intelius. Initially a homeland security play, Intelius aggregated huge amounts of public domain information on individuals. This morphed into a low-end consumer play ("get background information on anyone") and now seems to be trying to move upscale with a range of services like identity theft protection and nanny background checks.

Intelius has recently filed for a $143 million IPO, but just as lightening seems ready to strike twice for Jain, the company has become embroiled in controversy over its newest offering, a reverse cellular phone number directory.

Leave aside for the moment just how useful this product might be. Not long after the major wireless carriers abandoned plans for a national, opt-in cellular directory, along comes Intelius, apparently using a combination of lists and web spidering, with the same product. The general public, which made clear that it didn't want a plain vanilla cell phone directory, is seeing red at this seemingly sneaky and invasive database. And the wireless carriers agree with their customers. Verizon Wireless is even threatening litigation against Intelius, and the database has piqued the interests of the federal government as well.

Who legitimately needs this product that Intelius has built? Very few, at least relative to the effort involved in building this database. Further, couldn't Intelius anticipate the response to this product when the public had so recently and loudly rejected the concept of even a permission-based cell phone directory?

So why did they do it? I suspect the simple answer is, "because it's there." It's a troubling trend in a lot of companies these days. They see mountains of data, and turn some clever programmers loose to mine nuggets from it. In most cases it's a benign though expensive waste of resources to create a data product that nobody wants. In cases like Intelius, however, someone should have realized that not only is the product of marginal utility, it is going to face a firestorm of opposition.

The lesson is simple but important: just because you can efficiently build huge databases of information by extracting content from the web doesn't mean you should. More times than not, these databases are of little value. And in some cases too, it's important to consider whether society is ready for the data you are aggregating. When it comes to data mining, the test of whether or not an activity is legal is a pretty low bar. Intelius is a perfect example of a company that may pay a very high price in a cratered IPO for activities that appear to be perfectly legal. So be very wary of the "because it's there" business model.

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