ZeroKnowledge the Story (2)

Knowing Glances: Understanding Infrastructures of Surveillance

Chapter 2

From Freedom to the Management of Privacy Policy:

A Case Study of Identity and Identification in the Surveillance Process

David J. Phillips Associate Professor of Radio-Television-Film

University of Texas at Austin [email protected]

8 September 2005

DRAFT ONLY! NOT FOR REVIEW OR CITATION!

Knowing Glances, Ch 2 “From Freedom to…” David J. Phillips, 8 Sept 05 DRAFT ONLY! NOT FOR CITATION OR REVIEW! p. 2

From 1997 until 2001, Zero-Knowledge Systems (Zero-Knowledge), a company based in

Montreal, Canada, developed and marketed identity management program called Freedom.

Freedom was, at heart, an online pseudonymity an service. It enabled users to adopt persistant,

unlinkable pseudonyms and to choose among them each time they used internet services,

including e-mail or web browsing. Each pseudonym, or “nym,” became a unique entity. Each

nym could be identified, and its actions monitored and analyzed. But the identity of the nym

could not be linked to the identity of the nym’s owner, and the actions of each nyms could not be

linked to the actions of the other nyms, nor to the actions of the nyms’ owner.

The market model and the technical design of Freedom were informed by certain

ideological understandings of the relation of technology, individuality, governments, and

commerce, and Zero-Knowledge’s founders were able to harness hype, money, and talent to

embody that ideology within a complex consumer product, an international data network, and a

250-employee company. However, Zero-Knowledge was unsuccessful in its attempts to actually

sell Freedom to users. Surprised, the company’s leaders decided that in order to create profits,

attract investment, and survive as a company, they would develop a radically different privacy

product, intended to help privacy officers within companies track the flow of information held by

the company, and so to monitor compliance with local and international privacy regulations. In

2001, the Freedom pseudonymity service was discontinued. The corporate information

management product is still offered.

This chapter chronicles the strategies and tactics of Zero-Knowledge as they negotiated

these changes. In order to emphasize the ideals toward which Zero-Knowledge was striving, it

begins with a snapshot of the company at the height of its vision and promise. It then backtracks

to give a more chronological narrative of the context and actions that led toward and away from

that zenith. During those few years, Zero-Knowledge undertook development of a number of

identity or privacy services. The chapter concludes by considering each of those products as a

potential resource in the negotiation of social identity. It discusses the way that each was

potentially useful in mediating social power. By comparing the development and relative success


of each, the paper offers insights into the processes by which power relations are entrenched in

technical systems, particularly information and communication systems. 1

Zero-Knowledge in early 2000: a snapshot of promise This section is a snapshot of Zero-Knowledge’s operations during early 2000, when Zero-

Knowledge at its height. It had more employees than at any other time, and its vision was as

expansive and hopeful as it ever had been, or ever was to be.

In early 2000, Freedom was Zero-Knowledge’s flagship product. Freedom, from the user’s

perspective, was described briefly above. For about 50 USD a year, the user would subscribe to

the Freedom service. That subscription would allow the user to establish and use up to 5 nyms.

Before logging on to the internet, or sending e-mail, the user would choose which nym she

wanted to appear as. For example, one might have established one nym for one’s professional

persona, another for one’s casual persona, another for engaging in online sex, and yet another for

engaging in political activities. So, in logging on, one might choose among the nyms DrPhillips,

djp, Corky, or Che. While logged in as DrPhillips, all e-mail would appear to come from

[email protected]. Likewise, when logged in as Corky, mail would appear to come from

[email protected]. Although recipients could respond seamlessly to this e-mail, no one – not

the recipient, not the sender’s or the receiver’s internet service provider (ISP), not the internet

backbone providers, not even Zero-Knowledge itself – could determine who actually had sent the

e-mail. It was impossible even to determine that mail from Corky came from the same person as

mail from Che.

This strong pseudonymity was implemented by sending every IP packet through a remailer

network – a sequence of anonymizing servers. The Freedom software residing on the user’s

computer (the “client”) would encrypt each packet in layers and forward it to the first server.

That server would decrypt one layer of the packet, revealing the identity of the next server in the

sequence, to which the packet would be forwarded. That server would decrypt the next layer of 1 Notes on method; interviews, access to documents, review by principals. quotes and Canadian dollars


the packet, revealing the next server in the chain. This would continue until the last server in the

chain forwarded the packet to its final destination. Only the first server saw the origin of the

packet; only the last server saw its destination. Traffic coming in to a server could not be

correlated to traffic leaving the server. Thus this networked “cloud” of servers effectively

disguised both the route and the content of messages. The route was chosen not by any central

server, but by the client software on the user’s machine.

The network servers were not operated by Zero-Knowledge. Instead, their operation was

contracted out to numerous ISPs. This decentralization and distribution of the operation of the

servers was essential to the security of the network as a whole. In order to corrupt the system

and trace the route of a message, an eavesdropper would need to gain the cooperation of the

operators of all the servers in the message’s path. Ideally, those operators would be located in

different political jurisdictions, and would have different political and economic motives for

sustaining the network. The whole, then, and thus each message, would be secure from warrants

and other forms of persuasion from any particular jurisdiction.

The 50 USD per annum subscription fee was intended not only to support the operation of

the network and to generate profits, but also to support research and development of other

privacy services. Zero-Knowledge’s ambitions for these services were vast. They intended not

merely to offer a profitable online pseudonymity service, but to control “the privacy space.”

This “space,” as a construct, was used to attract investors, who were wooed with promises not

merely of a new product, but of a new market, a new industry. The privacy space would be huge;

it would touch everything. And Zero-Knowledge intended to dominate that space like ATT

dominated telephony. Or, more humbly, like Dolby dominated hi-fi noise reduction systems.

One Zero-Knowledge founder explained the analogy: in the 1970’s, no one really knew what

Dolby did, it had no competitors, it operated invisibly, but one would never buy a tape deck

without a “Dolby” sticker on it. Likewise, in the first decade of the millennium, every internet-

enabled device – cell phones, refrigerators, DVRs, TVs – would have a “Zero-Knowledge”

privacy label.

Zero-Knowledge had conceptually mapped this space along three dimensions of identity,

network, and commerce. These axes laid out the essential attributes of privacy. Securing private


identity made it impossible to determine “who” an actor was. Securing a private network made

it impossible to determine “where” an actor had been or with whom she was interacting.

Securing private commerce made it impossible to track the economic activity of any individual,

identified or not. These axes helped structure Zero-Knowledge’s narrative of itself. They guided

strategy as Zero-Knowledge developed not only the Freedom service (identity) but also the

anonymizing cloud (network) and an anonymous electronic cash product (commerce). They

helped Zero-Knowledge form a coherent identity to present to investors, analysts, and the press.

At the time, the privacy space was merely an ideal. There were no institutions occupying or

articulating it, no flow of money through it. And money was necessary to bootstrap the space –

to create and dominate it. That money was to come in part from subscriptions to Freedom, but,

more importantly, from investors. In early 2000, Zero-Knowledge’s strategy consisted in large

part of wooing those investors. They had significant resources to deploy in that courtship. Those

resources included including cutting-edge and fundamental technologies. Freedom was widely

recognized as the sine qua non of online anonymity2. The user interface may have been clunky

and slow, but the degree of privacy it offered, the inviolability of the underlying cryptography,

was generally recognized as state-of-the-art. Zero-Knowledge also controlled a set of basic

cryptographic patents potentially applicable to a vast range of online transactions.

Zero-Knowledge also enjoyed, and deployed, credibility and recognition, especially among

cryptographers and privacy activists. They reveled in “hot press.” One of the founders, Austin

Hill, seemed to be involved in every public discussion of internet privacy. He appeared in a panel

before the U.S. Congress, in a CBS 60 Minutes feature, and in countless articles in the

specialized and general press. Zero-Knowledge was a highly visible co-sponsor of the 2000

Computers, Freedom, and Privacy Conference, arguably one of the most prominent and

important international venues for discussions of the intersection of information technology,

policy, and civil rights.

Investors were also wooed with the possibility of changing the world while getting rich.

Freedom, and Zero-Knowledge’s hoped-for control of the privacy space, overtly embodied a

2 cite “Rolls Royce” reference


techno-libertarian ideology. The “techno” of “techno-libertarian” referred to cryptographic

technique. Cryptography was fundamentally important to Zero-Knowledge’s products, to its

ideology, and to its corporate identity. The very name of the company was both an homage to

cryptography (a “zero-knowledge proof” is a standard cryptographic protocol3) and a promise of

a specific relation between the company and its clients (Zero-Knowledge would know nothing of

its clients – not even who they were). No one need trust Zero-Knowledge to protect privacy;

one need only trust their software. And that software was to be open to inspection. One could

look at the code to see what it could or couldn’t do, what Zero-Knowledge could or couldn’t

know.

Their commitment to cryptographic technique was an extension of the founders’ libertarian

ideology. Zero-Knowledge perceived that the internet, by facilitating the availability of data

about individuals, relocated power to corporate and state collectors of data. It enabled a world

where your refrigerator could rat on you to your insurance company, automatically reporting

your consumption of beer, or eggs, or heavy cream.4 This threatened not only the autonomy of

the individual, but social progress – creativity, diversity, mutation, and evolution. But

individuals, given the tools of strong pseudomyity and untraceable economic transactions, would

challenge the powers both of governments and of entrenched corporate behemoths. Freedom,

and other privacy products, would allow individuals to retain control of their personal

information, to defend their entitlement to that data, to monetize it, to use their identity as capital.

Freed of the organizing oppression of both states and big business, cyberspace would blossom as

a capitalist utopia.

3 A zero-knowledge proof permits someone to prove that they possess certain information without revealing the information itself. Briefly, a challenger poses a series of questions, which the claimant can only answer correctly if she possesses the information she claims to possess. The cryptographic problem is to establish a set of questions which everyone can agree can only be answered with access to the secret information, whose answers can be verified without access to the secret, and whose answers don’t reveal the secret itself. 4 The “internet-enabled refrigerator” was an odd trope of this era. Futurists hyped the image of a busy worker, logging into his (or more likely, in this case, her) refrigerator from work, and checking its contents (one would scan the bar codes of each product when loading or unloading the fridge) before placing an order with an online grocery.


The degree to which Ayn Rand-ian crypto-libertarianism imbued Zero-Knowledge can be

seen in a series of print ads developed in early 2000. These glossy 2-page ads were placed in

business and industry periodicals such as Fortune, Forbes, The Industry Standard, and Wired.

They were intended primarily to attract investors, and only secondarily to spur consumer sales.

Each of three ads featured a photograph of a single individual against a vast landscape, and each

individual’s body was stamped with a bar code. To the side, the text read “I am not a piece of

your inventory. … I am an individual and you will respect my privacy. … On the Net, I am in

control.” There were three different ads, three different photos, and three different bar codes.

When concatenated and translated from the hexidecimal, the bar codes read “Who is John

Galt?,” a classic phrase from Rand’s Atlas Shrugged. While the messages were originally

intended as an “in-joke” to other crypto-libertarians, Zero-Knowledge quickly decided to

disseminate the image, revealing the message in various mainstream press stories.

Libertarian politics’ valorization of the individual also informed Zero-Knowledge’s market

model. Freedom was designed to be adopted and used by individual consumers. It was these

masses of individual Freedom users that would instigate global changes. Yet Zero-Knowledge

was aware that they, as a company, had to be vital and savvy in order to support that mass

adoption. Zero-Knowledge had to succeed as a business before they could have any political

effect. And so they constantly negotiated the tension between their identity as sensible and

fiscally conscious business people and their identity as radical political activists. The goal of

changing the world was always coupled with the goal of being a successful business.

Zero-Knowledge displayed its promise to potential investors not only in the quality of its

technology, but in the quality of its work force (who, of course, were producing the technology).

In its heyday, Zero-Knowledge was a fabulous place to work, in large part because of the quality

of the staff. During interviews, employees over and over again marveled that their co-workers,

the people they brushed elbows and chatted with every day, were “very, very smart,”

“visionary,” and “tops in their fields.” A significant number had stellar reputations outside of

Zero-Knowledge, especially in the cryptographic research and privacy policy communities.

Others were simply, down the line, competent, smart, and stimulating to work with.


The founders, Austin and Hamnett Hill and their father, Hammie, themselves were

“amazing in terms of visionary, smart business.” They had “their head in the right place, their

goals in the right place, and their views on how a company should run and how employees

should be treated all in the right place.” For many, Zero-Knowledge the best company in

Montreal. It had been written up in the local press for its “Valley” feel5 – employees brought

their dogs to work, the company provided masseurs, cappuccino machines, and laundry service.

From the start, excellent employee relations were essential to the company’s identity. They hired

one human resources administrator for every 15 employees, when the industry standard was one

adminstartor for every 100 employees.

Moreover, their “articulated vision of how to change the world … didn’t sound crazy, out

there, or impossible.” Zero-Knowledge was cool, it was hot, it was thrilling. It was “Canada’s

shot at some actual fame.” The opportunities seemed endless. If Zero-Knowledge were to be

successful, it would be “radically successful, wildly successful.” It could change the world, as

Apple had, and Netscape. There was an air of daring, irreverence, humor, and fun. Departments

were given playful names, often mocking national security or police agencies. Customer Service

and Information Support was abbreviated as “CSIS,” which was also the acronym for the

Canadian Security Intelligence Service. Network Support and Administration became “NSA,” an

acronym shared with the U.S. National Security Agency. The R&D group was referred to

internally as “The Evil Geniuses.”

In retrospect, this may seem an example of the “irrational exuberance” characteristic of the

dot-com bubble. But at the time the fantasies seemed not out of keeping with the facts. It was

the height of the internet boom; fortunes really were being made. Moreover, privacy was a

salient media issue, and privacy activists seemed actually to be having an effect on corporate

and governmental activities. PGP, a program to protect e-mail with strong encryption, had

become available for general use, over strong governmental objections, through the efforts of

individual activists backed by academic institutions. In the mid 1990’s, activist cryptographers

had aligned with telecommunication companies, forcing the federal government to back off of

5 elucidate re: silicon valley


plans to require the escrow of cryptographic keys used for secure telephony.6 Popular outrage

had convinced Lotus to withdraw a product that published people’s social security numbers.7

Likewise, DoubleClick had decided to forestall plans link its databases tracking people’s online

behavior with databases tracking their offline purchases.8 Not only was crypto policy was a live

public topic, it was “sexy.” And it seemed to be smack in the middle of revolutions in commerce

and governance.

So, in this middle, Zero-Knowledge teetered on several pivots. They were playful and

professional, radical and safe, a lucrative business and a political movement. The next section

chronicles the path Zero-Knowledge took to achieve this position, and the resolution of the

tensions it encountered there.

Zero-Knowledge 1997-2002

Ideological beginnings In 1997, Austin Hill and Hamnett Hill, Zero-Knowledge’s founders, were in their mid-20’s.

They had just sold their interest in TotalNet, an ISP they had founded and transformed into the

third largest in Canada, and were planning their next business venture. Internet companies were

booming, yet little commerce was actually occurring online. Polls and pundits indicated that one

of the things holding back an explosion of e-commerce was consumers’ fears about online

privacy.9 The Hills were not privacy activists at the time, but both were free market libertarians.

They were attracted, both ideologically and fiscally, to the idea of satisfying an untapped and

potentially huge market demand for services which would protect the online activities of

individuals from the prying eyes of governments and other large, entrenched, institutionalized

interests. They saw those services – especially anonymous payment systems and untraceable

communications – as essential components of a thriving internet-based commerce. The promise

of controlling access to those essential services proved a sweet siren call.

6 Levy, Steven. 2001. Crypto. New York: Viking. , or Phillips “secrets and trust” 7 cite 8 cite 9 cite


In the course of their market research, the Hills became involved in an active community of

cryptographers and privacy activists. It was from these conferences, white papers, and e-mail

lists that the Hills first absorbed cypherpunk crypto-libertarian techno-political philosophy. The

cypherpunks, as an identifiable group, began in 1992 as a loose affiliation of technically adept

computer scientists, some of whom had accrued substantial financial assets in the computing

industry. Their common bond was a belief that cryptographic technology had the potential to

fundamentally alter structures of power, particularly in the power of the government to monitor

and discipline the economic actions in individuals. In general, they were techno-activists. That

is, they tried to implement the technological structures that they believed would alter social

structures. Most communication within the group was through the cypherpunks mailing list,

which became one of the few generally available sources of cryptographic expertise. The list

was a vital source not only for cryptographers, but for reporters, academics, and researchers

covering cryptography issues.10 An important facet of cypherpunk philosophy was the

repudiation of “security through obscurity.” No system could be trustworthy unless it was open

to examination. Security software could not rely on secrecy. Instead, it had to rely on the

provable robustness of its cryptographic algorithms.

From the first, the Hills felt that it was essential to align with the cypherpunk community –

to prove themselves to that community and to enlist its support. That proof consisted of a

display of knowledge of the techniques and the politics of cryptography and privacy, and

especially a commitment to cryptographic software as the bedrock of privacy protection.

Developing Freedom The Hills operated with a sense of abundance. In February 1998, they hired their first

employee. This was a family friend with little experience in project management, and grave

doubts about his suitability for the job. But the founders argued that vision, intelligence, and

optimism were more important than experience, gave him “dispensation” for inevitable errors,

and convinced him to join.

10 Levy Wired cypherpunks article; djp diss; Privacy New Landscape


They next assembled two teams of software developers, one working on the client software,

the other working on the network software. Initially, the development teams’ strategy was to

rework existing remailer systems developed in prototype by cypherpunk cryptographers.

However, that strategy changed abruptly three weeks later, when Zero-Knowledge hired Ian

Goldberg as “Chief Scientists and Head Cypherpunk.” Goldberg was nothing less than an

international star of the cryptography community. 25 years old at the time, he had already twice

appeared in The New York Times for discovering security flaws, first in the Netscape browser (at

the time far and away the market’s dominant browser)11 then in mobile phone protocols. 12

These stories were big news, appearing, respectively, on the front pages of the Times’ main

section and its business section. In Goldberg’s words, the stories ran “everywhere.”

Goldberg’s hiring had three effects. First, it gave Zero-Knowledge “instant credibility” in

the cypherpunk and cryptography communities. Second, it irrevocably established the direction

of product development along cypherpunk ideals. That is, Zero-Knowledge committed itself to

developing from scratch “the mother of all privacy solutions,” an “NSA-proof” system, whose

security would rely not on any secrecy in how it operated, but instead on the provable

intractability of its algorithms. As a third, corollary effect, Goldberg’s hire sent the release date

back months.

Product development was guided by faith in the market, though not by faith in market

research. There were no formal attempts to find out what consumers would be likely to buy.

Instead, product development was mostly techies sitting around asking each other what cool

features they’d like to create and use. This process worked very well, for a while. In October of

1998, Zero-Knowledge presented Freedom at Venture Market East, a forum sponsored by Red

Herring magazine and intended to allow investors and start-up companies to become familiar

with each other. Zero-Knowledge was, in the words of a Red Herring editor, “a runaway hit.”13

11 The New York Times September 19, 1995, Section A; Page 1; Column 1; Software Security Flaw Puts Shoppers on Internet at Risk 12 The New York Times April 14, 1998Section D; Page 1; Column 5; Researchers Crack Code In Cell Phones JOHN MARKOFF 13 Lahey, Anita. 1999. “What Price Privacy.” Canadian Business Magazine (Feb 26)


Their presentations were standing room only.14 The Hills were “triple-booked” with venture

capitalists. Interest was so great that, perhaps paradoxically, they decided to hold off on

accepting venture capital, instead investing more of their own money, and the money of friends

and acquaintances.

More than merely reinforcing Zero-Knowledge’s faith in its own work, the interest

expressed at Venture Market East changed their understanding of the product they were

developing. Zero-Knowledge went into the conference with an e-mail and web anonymizer, and

they came out with an identity product, a base for many services and programs. The idea of

persistent pseudonymity – of nyms – was born at Venture Market East. The idea that identity

management had potential far beyond mere private e-mail changed the way the company thought

of themselves, and the way they presented themselves to investors.

Development efforts redoubled. A few months later, Zero-Knowledge’s faith in itself was

again rewarded, when they presented a pre-alpha version of Freedom at Demo 99, another

conference intended to present new technologies to investors and the press. Zero-Knowledge

presenters felt that Freedom was “the most recognized, most well-received, most attention-

grabbing” product there. The demonstration, and the welcome attention it received, was pivotal.

It gave Zero-Knowledge a sense, not only that they were on the right track, but that they could

compete with the best.

The development process was tremendously difficult and exciting. There were no similar

products for comparison (though prototypes of limited systems did exist), no established users to

interview. And the design of a private network was intrinsically more difficult than, say, the

design of a word processor. A buggy word processor was still a word processor, but a buggy

privacy system was no longer private. It demanded attention to the edge case; weird uses and

unlikely attacks were as important to design considerations as everyday use. And Zero-

Knowledge’s growing reputation among crypto hackers, and especially their claims to be

“military grade,” made them a sweet target for attacks. So designers constantly tried to imagine

and guard against attacks both from lone geniuses and from the concerted forces of U.S. military

14 Pittsburgh Post-Gazette November 1, 1998, Pg. C-3 HOW TO FIND A VC MICHAEL NEWMAN


and intelligence agencies. Occasionally, significant effort would be spent trying to incorporate

defenses against a specific type of attack, only to decide that the attack was so unlikely, and so

expensive, as to be absurd. For example, originally there had been plans to account for

correlations attacks, where someone observing the entire network could statistically correlate

traffic in and out of servers. Such an attack reveals the routes of messages, but not the contents

of messages, and requires enormous monitoring and analysis resources. Indeed, it was

eventually determined that the required resources were not simply enormous, but fantastic, and

the problem was abandoned as moot.

The work was constant and physically exhausting. Deadlines loomed, passed unfulfilled,

and loomed again, like a carrot held before a donkey’s nose. Coders worked through illnesses,

though nights and weekends, through threats of divorce and disownment.

While software development was proceeding, ISPs had to be recruited to host the Freedom

network servers. Initially, these ISPs were recruited through cypherpunk contacts and through

the founders’ contacts from their days as ISP operators. By this time, Zero-Knowledge was

receiving significant press in the industry, and many ISPs initiated contact with them. By the

time of the beta test, 65 ISPs had volunteered to host servers without remuneration. After the

beta, Zero-Knowledge started offering more formal contracts with ISPs. Under these contracts,

the host ISPs initially paid $3000 for each Freedom server, but after that were re-imbursed at

least $250 per month by Zero-Knowledge for Freedom traffic passing through the ISP’s internet

gateway. In addition to this monthly fee, Zero-Knowledge also offered ISP hosts a bit of market

advantage, since they could advertise that they were privacy-aware, and so differentiate

themselves from their competition.

Ramping up: growing reputation, growing payroll

Public relations was considered an essential part of the pre-release development strategy.

The public relations manager was employee # 21, hired in January 1999, eleven months before

the product release. Zero-Knowledge began appearing regularly in the local Montreal press, and

more and more frequently in the national Canadian and U.S. press. 15 Coverage came from many

15 cites ([from lexis: business week, Internet world, MacLeans, Marketplace, weekend edition. /congressional hearings: Newsweek)


beats, including the lifestyle, policy, and technology desks. The Hills had courted recognition

from established civil libertarian groups, including the Electronic Privacy Information Center,

the American Civil Liberties Union, and the Electronic Frontier Foundation, and from

established cryptographic and privacy policy experts. This paid off as these more established

press sources referred reporters to Zero-Knowledge. They reaped great press when Ian Goldberg

wrote code that could reveal the supposedly hidden unique serial number of each Intel Pentium 3

chip. This discovery was covered prominently by Newsweek and the New York Times, among

other publications16. Zero-Knowledge also published high-level white papers describing the

Freedom network. This early hype gave Zero-Knowledge a very strong brand image. It also

“locked them into” that image, and forced them into “being good, [being] above reproach.”

During summer of 1999, Zero-Knowledge closed on its first round of outside financing,

when Platinum Venture Partners invested 7.5 million CAD.17 With this infusion, Zero-

Knowledge ramped up hiring, and leased three floors of a newly renovated office building in

downtown Montreal as well as space in Palo Alto, California. There were no definite plans for a

Palo Alto office, but Zero-Knowledge management saw that eventually a presence in Silicon

Valley would be essential. Demand for office space in the Valley was skyrocketing, and they

figured that they could rent it out at a profit if they didn’t occupy it themselves.

Through late 1999 and early 2000, Zero-Knowledge actively displayed exuberance and

growth. In part, this display was intended to attract investors, but it also was intended to attract

“visionary thought leaders” to the employee rolls, and simply to have fun. Recruitment was very

“un-Montreal.” Zero-Knowledge would poach employees from other local firms by sitting

outside in a flatbed truck with a sign proclaiming “We’re hiring!” They were later cited by The

Industry Standard for their ability to hire, massively and quickly, high-quality people.18

For Zero-Knowledge was actively expanding their expertise into other areas of the “privacy

space.” They brought aboard internationally recognized experts on privacy policy to establish a

consulting practice aimed at corporations who increasingly had to acknowledge and deal with 16 cites 17 cite prospectus 18 The Industry Standard, May 22, 2000, Recruiting: How The Best Are Won, Deborah Giattina, (page?)


global data privacy regulations. They also radically extended their cryptographic expertise by

hiring Stefan Brands and licensing several of his patents for implementing “private credentials.”

Private credentials provide a means of disentangling the verification of the various attributes

to which a credential might attest. As a general example, suppose a user, Alice, needs to be able

to prove, on various occasions, her name, her age, her citizenship, and her student status.

Moreover, she wishes to prove these independently, to prove her age without showing her name,

for example. She would go to a commercial credential issuer, and present proof those attributes

– her birth certificate, say, and a University bursar’s receipt. The issuer would then provide her

with a digital credential attesting to those attributes. When challenged regarding her age or

student status, Alice would present the credential. However, she would also present a logical

query regarding the embedded attributes. The challenger would receive in return a true or false

response to that query. For example, suppose the public transportation system offers a 50%

discount to students and to those over 65. Alice could present her credential, along with a query:

“Am I over 65 OR a student?” The response would be “yes” and Alice would qualify for the

discount. But the bus company would not know Alice’s age or her student status. They would

not even know her name. Digital credentials might be implemented in various media, including

smart cards, cell phones, or the internet.19

Brands had also developed a means by which credentials could be used privately only once.

Presenting the same credential twice would reveal all of the information on the certificate. This

could have enormous potential in anonymous electronic voting systems. Alice could use her

credential to prove that she was a registered voter without revealing her name. But if she tried to

vote twice, her name would be revealed, and appropriate penalties could be levied.

Like Ian Goldberg, Stefan Brands was internationally renowned, and his patents were

generally recognized as fundamental, basic, and applicable to a wide range of online

transactions. Moreover, they seemed likely to withstand legal assault. They were “legitimate, …

easy to defend, big spiky things you can’t go near.”

19 cite Brands’ book


While Zero-Knowledge saw in the Brands patents “the future e-commerce and identity,”

Brands saw in Zero-Knowledge a commitment to commercialize state of the art cryptography.

He was impressed both by Zero-Knowledge’s in-house cryptographic expertise (especially the

presence of Goldberg) and by the entrepreneurial vision of Zero-Knowledge’s management.

Once having acquired the patent rights, Zero-Knowledge’s research and development team

(the “Evil Geniuses” or simply the “Evils”), set about to develop an electronic cash application.

As with Freedom, there was no formal market analysis guiding this decision. Instead, strategic

decisions were seat-of-the-pants. Other applications (air miles and other reward programs,

electronic voting, highway toll systems) were just as feasible, but E-cash was interesting. It was

big. It was thought to be de novo – not to be built upon existing banking or payment processing

infrastructures, but to be a system unto itself. It seemed like a logical extension of the Freedom

model, since nyms had to be paid for, and the payment system was one potential source of

surveillance within the Freedom infrastructure.20 Perhaps most importantly, though, anonymous

payment systems had long been a cypherpunk project, an integral part of the crypto-libertarian

ideal of a free market in cyberspace.21 And that ideal found its home within the Evil Geniuses

more than anywhere else at Zero-Knowledge.

The E-cash project was code-named Zorkmid, after the unit of currency in an early on-line

role-playing game.22 Zorkmid got very little corporate support or attention within Zero-

Knowledge outside of the Evil Geniuses group, though Zero-Knowledge did bring external

collaborators into its development. A major wireless phone company was interested, as well as

one of the leading smart-card manufacturers. Zero-Knowledge response was to let them in on

the development process, not so much as active collaborators, but to give them access to Zero-

Knowledge’s developments, to allow them to develop their own applications based on patents 20 Zero-Knowledge did have a process in whereby one could pay for nyms anonymously by sending cash through the mail, and a significant number of users, especially from Europe and Russia, in fact did so. But it was an awkward and kludgy process. 21 Phillips, D.J. 1998. “The Social Construction of a Secure, Anonymous Electronic Payment

System: Frame Alignment and Mobilization around Ecash.” Journal of Information Technology 13(4): 273-283.

22 http://en.wikipedia.org/wiki/Zorkmid; 18 July 2005


which Zero-Knowledge controlled, thereby facilitating a future source of revenue. Zero-

Knowledge pursued a similar strategy as it released the some of Freedom’s source code.

Hopefully, access to the source would encourage third-party developers to produce applications

that would rely on, and pay fees for, access to the Freedom network. [DJP: promote this as a

significant corporate strategy]

These were heady times at Zero-Knowledge. Words like “awesome”, “overwhelming”,

“charismatic”, “risky”, and “exciting” were frequently used to describe this period. The

possibility for global change seemed palpable, and some employees could hardly sleep with

excitement. Zero-Knowledge took themselves seriously, and management took seriously the

importance of a fun, vital, and creative workplace, aware of long term goals yet focused on

action here and now. Happy and committed employees were considered an essential resource.

As the company grew from 45 employees in July 2000 to over 250 employees a year later, the

founders wanted to ensure that the company would always have the vitality of a start-up. They

instituted a “Newbie University” for all new employees – a three day intensive workshop

inculcating newbies into Zero-Knowledge’s philosophies, strategies, culture, and products. They

commissioned a “cultural snapshot” from a consulting company, who conducted focus groups

and interviews to identify the workplace’s “key enablers” as well as “potential barriers” to

meeting Zero-Knowledge’s goals.

This exuberance, expansion, and growth was gratified and renewed in December 1999 when

Zero-Knowledge closed another round of institutional investment, this time for 37 million

CAD.23 This expansion of vision, of hiring, of patent acquisition, of financing began before and

continued past the Freedom release. It was not based on Freedom’s relation to the market, which,

as we shall see, was never really robust.

The Launch of Freedom In December 1999, after several months of beta-testing, Zero-Knowledge launched

Freedom 1.0. The developers and the management thought they had changed the internet forever.

23 prospectus


They celebrated with high-fives and beer (though “no actual tears”), and sat around exhausted,

creating nyms to populate the network.

Concurrently with the product launch, Zero-Knowledge assembled a marketing department.

Marketing immediately set out to brand both Zero-Knowledge as a company and Freedom as a

product, and to develop marketing strategies for each, selling the company to investors and

Freedom to consumers. They immediately chose a strategy of “cause related marketing.” This

is a strategy whereby the company is associated not with a product, but with an ethos or a cause.

As an examples of successful cause related marketing, the Marketing department pointed to The

Body Shop, which sold not cosmetics but female empowerment, and Benetton, which sold not

khakis but universal justice, love, and harmony. Zero-Knowledge could similarly identify

themselves with individual political rights. Indeed, Zero-Knowledge could do this more

naturally and easily than, say, Benetton, since Zero-Knowledge’s products were, in fact, directly

intended to facilitate those rights.

So as a conscious corporate strategy, Zero-Knowledge strongly and publicly endorsed

privacy advocacy and the political rights of the individual, hoping this would give them “the

credibility to garner [the] evangelical devotion” of employees, investors, and customers. The

moral high road would also inoculate Zero-Knowledge against backlash when, as was inevitable,

someone used Freedom in the course of a crime. When such an event drove critical media to the

Zero-Knowledge site, they would find there “an unambiguous and principled defense of privacy

rights.” In a sense, this branding strategy simply re-affirmed and built upon the public relations

strategy that Zero-Knowledge had been pursuing since its inception.

Branding Freedom as a product was more difficult than branding Zero-Knowledge as a

company. First, the name “Freedom” was chosen long before the marketing department was part

of the Zero-Knowledge organization, and, from a marketing perspective, the choice had been

unfortunate. The name did not indicate what the product did. As an evocative signifier,

“Freedom” might be attached to any product “from a brassiere to a missile guidance system.” So

marketing developed images to suggest what it was that Freedom would allow users to enjoy.

While Zero-Knowledge’s image was to be of sober, principled advocacy, Freedom was to be


presented as footloose, childish, and empowering. Suggestive visuals might include pictures of

girls laughing as they whispered secrets.

The Freedom home page in January 2000 reflected these branding decisions. The dominant

image was of a person of indeterminate gender, looking through a telescope, wearing a strange

expression of surprise, shock, or repellent fascination. Freedom was touted as offering “absolute

privacy protection,” and the reader was exhorted to “Get the headlines,” “Explore the issues,”

“Understand the technology’” and “Learn what’s at stake.” Clicking any of these would lead the

reader to a news service, where current off-site articles were indexed under five categories:

“General,” “Families,” Human rights,” “Technology,” and “Law enforcement.” The sight also

included an employee recruitment notice, asking “Have you got what it takes to be a Zero-

Knowledge Internet Freedom fighter?”

The initial marketing strategy was to “viralize” the product – to spread the good word that

Freedom had arrived. If people knew about it, they would buy it. The marketing team referred

to themselves as “evangelists,” zealously spreading a revolutionary message. The team targeted

several “vertical markets” whose participants would be most likely to adopt Freedom. These

markets were understood as organized around interests, since the team inferred that those

interested in certain topics or activities would have a “natural” interest in privacy as well. The

initial interest-oriented markets to be targeted were “gay and lesbian,” “health,” “financial,”

“political,” and “family.”

To reach the members of these markets, Zero-Knowledge marketers hoped to co-brand

offerings with interest-based internet portals. For example, gay portals such as gay.com and

PlanetOut were approached with the opportunity of sponsoring co-branded e-mail, so that every

message sent by the portal’s subscribers would be pseudonymized, and carry not only a

“Freedom” tag but also a “gay.com” or “PlanetOut” tag. Some of the Zero-Knowledge

evangelists had enough experience to have developed relationships and contacts within the

targeted markets, but usually the approached potential partners through cold calls, sending

informational packets and “Zero-Knowledge” branded trinkets (key-rings, retractable phone

cords, t-shirts, mouse pads, baseball hats, …), and following up with a phoned pitch.


Sales were disappointing, at best. In February 2000, product management was planning for

a network accommodating 2.5 million users by end of 2000.24 Yet by July 2000, there were only

12 thousand active nyms.25 To make matters much, much worse, the “dot com bust” occurred

within a few months after Freedom’s release. Investment dried up, and companies involved in e-

commerce, who may have had an institutional interest in online privacy, folded. [Need a few

more sentences describing the bust]

So through most of 2000, Zero-Knowledge was constantly re-evaluating their environment,

strategies and tactics. Their initial corporate strategy had been to attain first-mover control of an

emerging space. This control was to be financed by investments and by revenue from Freedom.

But Freedom sales were little better than dreadful, and investors could no longer be enticed by

promise. They had to see revenue. In response to these conditions, Zero-Knowledge developed a

two pronged strategy of revenue generation. The first prong was to re-evaluate the design and

marketing of Freedom. The second was to develop products and services to appeal to corporate

clients.

Reconsidering, revamping

The design of version 2.0, which began almost immediately after the release of 1.0, was

increasingly influenced by the knowledge of 1.0’s poor sales record. The development of

Freedom 1.0 had been guided only by the developers’ imaginary user, who looked a lot like the

developers themselves. In developing Freedom 2.0, Zero-Knowledge attempted to satisfy not

only its techie constituency, but to discover and satisfy the desires of potential non-techie users.

Version 2.0 incorporated two major technological changes to the Freedom service. First, the

method of encrypting and delivering e-mail was completely revised. 1.0 had delivered encrypted

e-mail to the user’s ISP, along with a “reply bock” that would contain the return address,

encrypted in layers. The user’s client would use the reply block to set up the return path for

responses. This was a “cool trick,” cryptographically, but awkward to implement, slow, and

likely to fail. Instead, 2.0 sent all mail to a POP server hosted by Zero-Knowledge. Login to

24 “roadmap” 25 “nymsats.htm”


that server was anonymous, and all mail to and from it was sent through the same anonymizing

server network as in previous versions. It had the same level of security as the previous version,

but was much simpler to operate.

Also, to improve latency, the network was reconfigured to have fewer servers, and to have

those servers “closer” to the internet backbone. The security of distributed operations could be

maintained by scattering the servers among different backbone network providers – MCI or

Qwest, for example – rather than at the level of ISPs. Like the abandonment of the reply blocks,

this change reduced latency and increased robustness. It also alleviated the expense of Zero-

Knowledge’s deals with ISP hosts.

Zero-Knowledge’s attempts to find the user for Freedom included the marketing and the

development teams. However, coordination between these teams was ad hoc, at best. The client

development team began work on version 2.0 almost immediately after the release of 1.0. In

order to define the functionality of the 2.0 client, in order to think about what it should do, the

software team developed a “book” of user stories. Each story was a short profile of how an

archetypal user would interact with the client. “Alice”, for example, wanted an anonymous e-

mail service for which registration would be simple and wouldn’t require her to divulge personal

information. Each developer would invent a “pet” user, and submit the user’s profile to the team

for review. A profile went into the book if a majority of the developers liked it.

Coders were at this for a month, not coding, getting antsy, feeling uncertain of their

competence, and trying to get other departments involved. The team leader especially needed

the buy-in of the top management and the sales team, warning them not to complain later if the

team developed a product that couldn’t be sold, pleading with the marketing and sales

departments to be told what sort of features would be sellable.

The marketing team was, of course, trying to find answers to those questions. But this was

extremely difficult. It was a new market; no one had ever tried to sell such a service before. And

it was a market where the buyers were, by definition, concerned with privacy and not

forthcoming with information about themselves. Moreover, Zero-Knowledge’s whole persona

was based on the premise that users needn’t and shouldn’t trust anyone, including Zero-

Knowledge.


However, Freedom users were regularly in contact with Zero-Knowledge through the

department of Customer Service and Information Support (CSIS), which operated the help desk.

The marketing team requested customer service records from CSIS. They also requested the

nyms of users who had had contact with CSIS, so that marketing could send them questionnaires.

CSIS resisted both of those requests on privacy grounds. However, CSIS did provide marketing

with aggregate records from their database, describing, for example, the types of features callers

had requested. This aggregate, de-personalized knowledge became a “treasure of information” in

the development of 2.0. The marketing department also conducted a user survey, distributing it

through the Zero-Knowledge web site, advertising it through the sales team’s personal contacts,

and offering t-shirts and video store gift certificates as incentives for participation.

In these efforts, marketing was focused not only on 2.0 development. They were also

looking at Zero-Knowledge’s overall sales strategies, at the true viability of the privacy space,

and at Zero-Knowledge’s brand perception.

The initial sales strategy had been to approach customers in interest-based markets (like

health care, women, gay and lesbian interest, financial) by developing partnerships with big

properties in each segment – portals like gay.com or i-village. In its research, marketing

discovered several reasons for the failure of this strategy. Unsophisticated users had difficulty

installing and using Freedom. Many potential users got their internet access through America

Online (AOL), and Freedom was incompatible with AOL software.26 Freedom slowed

communications considerably, and more sophisticated users, habituated to high-quality service,

were unwilling to put up with this latency. And while Freedom’s flaws were readily apparent in

use, its virtues were invisible. When it worked well, nothing happened. The typical user that

Zero-Knowledge was able to attract was a 25-34 year old male, working in the tech industry, and

already interested in internet privacy. There was no correlation between the interest-based

market segment and the likelihood of uptake. That is, it didn’t matter whether the user was

interested in health care or financial issues; what mattered was whether he was technically adept

and interested in privacy. This was a niche market, not a mass market. In response to this new

26 note re: cultural gap between techies and the masses; contempt for AOL.


knowledge, the marketing team changed its strategy to target early adopters rather than market

segments.

The “early adopter” strategy was based on a well-established model of technological

diffusion. According to this model27, new technologies are taken up by various groups in turn.

“Innovators” are the first to take it up, followed by “early adopters,” “early majority,” “late

majority,” and “non-adopters.” Members of these categories share certain characteristics. Early

adopters, for example, tend to have high socio-economic status, and to be young, mobile,

creative, and open to contact by sales people. Zero-Knowledge’s marketing department now

sought to narrow their consumer outreach by targeting only those groups with privacy interests

that also shared the demographics of “early adopters.” They identified and ranked eight such

interest groups: “techies,” “gay and lesbian,” “activists,” “students,” “internet relay chat users,”

“broadband users,” “adult entertainment enthusiasts,” and “discussion group users.”

Zero-Knowledge’s new marketing strategy focused on the first four of these groups. The

strategy was three-fold – first to drive awareness within those groups that Freedom was

“privacy-enabling, then to drive traffic from those groups to Freedom’s web site, and from there

to drive downloads and sales. Awareness was to be driven by attending events for each interest

group (like the Geek Pride Festival or gay pride parades), by getting the endorsement of opinion

leaders in each community, by increased visibility of “freedom.net” email addresses in

discussion lists, and by banner ads on portals and web sites. This marketing strategy was not so

different from the initial “viral” strategy, but it recognized that, at least until version 2.0

improved Freedom’s usability, the target of the viral campaign had to be more precisely

circumscribed.

The marketing department set out also to try to address growing concerns within the

company that they had entirely misjudged public attitudes toward privacy. As Austin Hill put it,

“everyone says they care about privacy, but people would give a DNA sample for a ‘free’ Big

Mac.” Privacy seemed to be an issue rather than a problem, or a problem from which no one

“suffered.” People within the company echoed others in the privacy activist community and

27 cite


wondered how the privacy movement could attain the same cultural salience that the

environmental movement had reached in the 1960’s. What sort of “privacy Chernobyl” would be

necessary to wake people up? If the FBI decided require every ISP to record every packet

flowing through their servers, would that stimulate resistance? Would that demonstrate a real

need for Zero-Knowledge’s product?

In the months after the Freedom launch, the marketing department tried to generate

empirical knowledge about the “privacy space” and Zero-Knowledge’s perceived position within

it. They conducted focus groups in Boston and Toronto. What they found struck at the heart of

the company’s belief that individual consumers would understand privacy as a political problem,

and would see the purchase and use of Freedom as a viable response to that problem. They found

that potential Freedom users had vague but fatalistic attitudes toward internet privacy. Most

internet users were ignorant of the ways in which their activities were monitored, yet had

resigned themselves to that monitoring. Encryption was an unfamiliar and intimidating concept.

Moreover, they were put off by Zero-Knowledge’s seemingly grandiose claims – both the claim

to provide “total internet privacy” and the claim that such “total privacy” would cure social ills.

With this growing awareness of difficult, and perhaps intractable, problems with a reliance

on a consumer market base, Zero-Knowledge put more effort into attracting corporate “deep

pockets” clients. On one hand, they began looking to channel marketing as a distribution

technique. That is, they sought to recruit original equipment manufacturers (OEMs) to distribute

Freedom with the equipment. New computers would be configured to install Freedom on the

foirst boot; routers would come with a CD including the Freedom software. To appeal to OEMs,

Zero-Knowledge incorporated “Freedom For Free” into version 2.0. “Freedom For Free” was a

suite of security tools including an ad-blocker, a cookie manager, a firewall and a form filler. It

also allowed users to register nyms and send and receive pseudonymous e-mail. These would be

available at no charge to anyone installing the software that came with the newly purchased

computers. Anonymous web browsing via the full Freedom pseudonymity service would still be

available for subscription. In splitting up the product this way, Zero-Knowledge rejected other

options, like charging for the security tools, or stepping up development of private certificate and

e-cash products. Instead, Zero-Knowledge management hoped that by making the Freedom

client readily available as the front end for popular (and cheap) security tools, it would channel


users toward adoption of more specialized, and eventually more profitable, privacy services,

such as private e-mail and web browsing, private or anonymous authorization, payment, and

verification services, or challenge-response spam management. But to convince OEMs to bundle

Freedom, Zero-Knowledge had to show both that there was consumer demand for their privacy

products, and that their security products offered improvements over similar products then on the

market, like those offered by Symantec and McAfee. So the development of 2.0 was coupled

with a renewed effort to drive up sales of 1.0.

Zero-Knowledge also attempted, with little success, to attract corporate clients, both through

a corporate version of Freedom, and through privacy consulting services. The business need for

anonymous browsing was not difficult to argue. More and more corporate research – market

research, investment research, patent research, surveillance of the affairs of competitors –

occurred via the web. While the web gave cheap access to lots of information, it also made the

search activities themselves more visible. So the direction and strategies of a corporate research

interests became more visible to their competitors. Anonymous web browsing through Freedom

would give businesses all of the benefits and none of the drawbacks of the web’s visibility.

Unfortunately, though, a business couldn’t adopt Freedom simply by buying nyms for all their

employees. In its standard implementation, Freedom did not work from behind a firewall, and

virtually all corporate networks had installed such firewalls. Instead, access to the anonymizing

network had to go through a gateway which had to be custom designed and installed for each

corporate client. So the costs and risks of marketing, adopting, and installing Freedom’s

corporate version were substantial.

The privacy consulting services which Zero-Knowledge offered to these “deep-pockets”

clients included analyses of regulation compliance and information management with a specific

focus on issues for multi-nationals. Zero-Knowledge did have some success marketing these

services. Indeed, from July 2000 through March 2001, “services and consulting” accounted for

over 60% of Zero-Knowledge’s revenue. 28 However, management still complained that they

were not getting the really big clients, because they themselves were not a really big operator.

They were not Anderson Consulting, for example, or IBM. 28 cite prospectus


Enterprise solutions Zero-Knowledge’s move to attract corporate clients resulted in another stream of product

development. Shortly after the release of Freedom 1.0, Zero-Knowledge management was

approached by the management of Excite, an online profiling and advertising company.

Through the use of third party cookies, Excite collected anonymous data on individuals’ web

surfing habits. They then used that data to create profiles of users and to serve banner ads to

users based on those profiles. In their PR, they were adamant that they did not collect any

personally identifiable information (PII). However, they now were looking for a way to collect

and use PII and to amend their privacy policy without violating its spirit. This was by no means

an idle or altruist concern. One of their competitors, DoubleClick, had recently planned to merge

identified with anonymous data, and the uproar included an FTC investigation, numerous

lawsuits, and a steep, though brief, drop in their market capitalization.29

Because Zero-Knowledge had very high visibility in the nascent privacy field, Excite sought

them out for advise and possible technological solutions. The courtship between Zero-

Knowledge and Excite was brief, and nothing concrete came of it. Nevertheless, it awakened

Zero-Knowledge to a possible corporate demand for their technology. They began to see a

“common thread” of “core needs” for data blinding, for a “privacy layer” in the data

infrastructure. Data holders were very good at putting data in and taking data out, but there

were no mechanisms for fine-grained control, for using data for one thing but not another. This

was so even when companies were well-intentioned and sought to use data responsibly. A

corollary of this coarse control of consumer data was a “trust problem” between consumers and

businesses.

There were some moral qualms within Zero-Knowledge about going into corporate database

management. There were questions of whether data collection companies were intrinsically

enemies of privacy. However, consensus was quickly reached that the “privacy problem” was

not the tailoring of ads to suit each particular viewer’s interests. It was knowing what a particular

user was doing – knowing, for example, which search terms someone was using on the New

29 http://www.aef.com/06/news/data/2000/1154; 22 June 05


York Times web site. The goal then, was privacy enabled profiling – detailed, dynamic profiles

that were not linked to any PII.

Once the decision was made, Zero-Knowledge moved quickly to develop a new service, a

database blinding engine code-named “Blind Elephant”. Database holders would agree to

encrypt, or “blind” PII fields of each data record. The blinding algorithm would be such that the

same original value would always produce the same blinded value, but it would be

mathematically impossible to compute the original value from the blinded value without access

to a cryptographic key. This key could be held by a third party, mutually trusted by database

operator and data subject.

Blind Elephant would allow database operators to profile their users more effectively, and to

engage in one-on-one communication with their users, all without direct access to any personally

identifiable information. For example, suppose BigPharmaceuticalCo wanted to know the

demographics of FabNewDrug buyers. Using Blind Elephant, they could buy that data from

pharmacies, but with the identifying field (say, the social security number) blinded.

BigPharmaceuticalCo could also buy consumer reports from credit agencies, again with the

social security numbers blinded. Since each unique social security number would blind to the

same unique value, the pharmacy records could be matched with the credit records. Thus

individuality could be established without identity, and statistics could be generated without

violating privacy. Moreover, some at Zero-Knowledge asserted that the quality and usefulness

of individual records would likely improve, since users would be more trusting, and less likely to

falsify data.

Blind Elephant would also mediate “privacy-enabled” customer relations management. As

in the above example, PII fields would be cryptographically blinded, and could only be

decrypted with a key held by a third party, say Zero-Knowledge itself. Records could then be

merged, and patterns discovered. BigPharmaceticalCo might find a particular cluster of de-

identified user records particularly interesting, and particularly attractive for a marketing

campaign. They would like to send e-mail to each of those individuals to whom the records

refer, but they don’t know who those individuals are. Instead, they would send to Zero-

Knowledge two pieces of information – the encrypted e-mail address gleaned from the subject’s


data record, and a message to send to that individual. Zero-Knowledge would check that the

subject of the record had agreed to receive e-mail. Only then would Zero-Knowledge decrypt

the e-mail address and send the message. At no point would the merged data and the PII be

available together.30

Zero-Knowledge identified in Blind Elephant (later renamed the Privacy Rights Manager

(PRM)), three value propositions for deep-pocket clients. It would give database holders a

competitive advantage in that they would be able to advertise themselves as privacy-aware. It

would promote trust between data subjects and database holders, encouraging subjects to be

more honest and forthcoming in the provision of personal information, and allowing database

holders to create more accurate profiles. It would also facilitate compliance with a growing body

of privacy law, all of which regulated the collection and exchange of personally identifiable

information. Zero-Knowledge had little empirical data to support the first two propositions, so

they focused instead on the third. Thus the health care and financial industries, as the sectors

most subject to privacy regulation, were identified as the “low hanging fruit.”

In its targeting of institutional actors, rather than individuals, PRM was a step away from the

libertarian ideology of Freedom. That ideology did not die, however. The attention to

institutions was seen in some quarters as instrumental, as a way to get privacy to consumers yet

have someone else pay for it. Because consumers were still not buying.

The move toward developing business friendly products and services was accompanied by a

shift in PR. Almost immediately after the release of Freedom 1.0, Zero-Knowledge had realized

that they had to get away from the “cypherpunk, libertarian, nutsy thing,” away from being

perceived as a bunch of hackers. They had to package and communicate the privacy problem in

a way that wasn’t “scary” or “threatening.” They had to show that privacy was good for business.

They toned down their “flacktivism” and became much less “in-your-face.” For example, in June

2000, Zero-Knowledge became aware that Freedom users were unable to access some FBI web

sites. Had this happened six months earlier, Zero-Knowledge’s PR would have been

confrontational. Now, however, the PR director made efforts to downplay the entire situation, to

30 This image was the inspiration for the “Blind Elephant” name: like the proverbial elephant “seen” by a group of blind men, different parts were visible to each viewer, and no one was able to understand the whole.


publicize the cooperation between Zero-Knowledge and the FBI as they together tried to solve

the problem.

Zero-Knowledge needed a new kind of credibility. They no longer sought the imprimatur of

cryptographers and activists. They needed “established players” – banks and telecomm

companies – to say “we are partnering with Zero Knowledge because Zero Knowledge is the

leader in the privacy space.”

Regrouping

Throughout 2000, Zero-Knowledge was trying to recruit a new CEO and management team.

In early 2001, they were successful. At the same time, Reuters invested 32 million CAD in the

company. The new team further articulated and rationalized Zero-Knowledge’s corporate goals

and strategies. The goal became simple – to turn a profit and survive. The strategies to meet that

goal were similar to those that had been developed over the previous year. They were, first, to

sell more consumer product and second, to establish a high-margin product aimed at corporate

clients. In pursuit of these strategies, the new team instituted core changes to Zero-Knowledge’s

culture and sense of itself.

Massive layoffs began in March 2001. These struck at the core of Zero-Knowledge’s self-

image and their sense that a fun, caring, and creative workplace was an essential engine of

success. Zero-Knowledge handled the layoffs with a sense of responsibility, conducting them

internally, rather than bringing in outside consultants, as was common in other corporations. The

People Department first laid off half their own, using that experience as a way to learn how to

manage it for the rest of the company. As one of the People Department managers put it, “We

hired them and made promises, we’re breaking the promise and we’ll do it ourselves.”

By Jan 2002, Zero-Knowledge’s employee roll had shrunk to about 110 from the peak of

about 255, which it had reached 18 months earlier. No longer were programs like Evil Geniuses

kept because they were “fun.” Everything was evaluated by a “must have” criteria, and

immediate revenue was the goal against which necessity was justified. With the shift to channel

marketing and distribution via OEMs, there was less need for advertisements, so the marketing

department was hit hard. After the layoffs, “performance management” was instituted in order to

get newly re-organized departments to focus on corporate goals. At this point, many, but not all


of the departments changed their names. People Department became Human Resources, for

example, and Evil Geniuses became Zero-Knowledge Labs, though the support group remained

CSIS.

Throughout the summer of 2001, in the face of 56,000,000 CAD in losses over 3 years,

Zero-Knowledge management decided to radically cut back and reconfigure its product lines.

First, they released the rights to the Brands patents. Maintenance of these licenses and patents

had cost Zero-Knowledge nearly a million dollars a year, yet Zorkmid at its zenith was merely an

unstable Java prototype demoed at a small conference on Financial Cryptography. Not only had

the patents returned nothing in revenue, no one could see any longer who would possibly, within

the next fifteen years, license and develop them on the scale necessary to justify their

maintenance.

PRM, the corporate software product, underwent radical revision. Internal prototype

development had continued since mid-2000, and by the time the new management team was

installed in 2001, a “version 0.9” prototype was ready for demonstration to potential clients.

This prototype was “slide-ware.” It involved no code, simply a high level description of the

system’s architecture. Like Freedom before it, the prototype was developed based on a

marketing requirements document (MRD) that was developed with little formal market research

or needs analysis. It offered to clients an “end to end privacy policy and information

management solution” which would reduce risk by managing “complex linkages among

heterogeneous applications and components.”

PRM’s architecture consisted of five components:31

• PRML, a “privacy rights markup language.” This was an XML based language to

codify and rationalize privacy policies and privacy practices. It allowed for

definition of privacy objects and for declarations specifying the relations among

those objects. A set of declarations represented a company’s policy. Specifically,

“[d]eclarations specify that a role can do an operation on a data element for a

purpose if certain constraints are satisfied, and can specify that an action should be

31 Hill and Levitan “Privacy Rights Management” ppt; June 5, 2001:


taken when this occurs and/or that the data element should be subject to

transformation before an operation can occur”32

• a privacy console, which was to act as an interface between the data and the system

operators. This console could discover and inventory personally identifiable

information, model policy in PRML, and manage and report on database events.

• a central privacy server, which would execute and monitor all required PRML

actions, and report to the privacy console.

• privacy-aware enforcement agents – software agents mediating between the privacy

server and specific privacy applications, and

• the privacy applications themselves. These were to be the actual data management

activities, permitting or denying access based on policy, anonymizing, de-identifying

and re-identifying data, or pseudonymizing transactions.

In summer of 2001, shortly after the arrival of the new management team, the PRM Center

was first demoed for a potential client, an event described as “a two-day train wreck” which left

the client “stupefied.” In reaction, the new senior management took active control of the project,

scrapping the MRD inherited from Blind Elephant and starting anew. The new MRD was

written only after extensive market research, including meetings with potential clients, and an

independently conducted market survey of fifty Chief Privacy Officers (CPOs) working in the

target segments. These target segments remained the same – the heavily regulated health and

financial industries.

What emerged from these deliberations was the Enterprise Privacy Manager (EPM), a

product of much smaller scope. Unlike the PRM Center, EPM would not interact directly with

data flow. Instead, EPM was to sit atop, or along side, site-specific data systems. because these

mission-critical database systems were too large, too specialized, and too entrenched to interfere

with. EPM would simply be a software tool to internally audit and track information flow, to

verify compliance with privacy policies. As Chief Financial Officers had spreadsheets, so CPOs

would have EPM. The sole survivor of PRM Center development was the markup language, 32 ZKS Enterprise Product Unit Business Plan Overview (ppt dated 2001, after Hevizi, Weidick, Beans hires


PRML, which became the starting point for the development of a new language specification,

EPML.

Zero-Knowledge pursued the development of EPML in “coopetition” with IBM. IBM had

been aware of Zero-Knowledge’s work on the PRM Center, and became interested because they

and their subsidiary, Tivoli, had been engaged in a similar project. [djp: verify] According to the

Zero-Knowledge project manager, IBM was impressed with the PRM work, and asked to

continue collaborative development. Alliance with a powerful partner had, by this time, long

been keenly desired by Zero-Knowledge, so they were eager to agree. On the other hand, they

were very wary of engaging with such a powerful partner. An integral part of the development

strategy then became to establish and defend intellectual property rights in EPML so that IBM

could use it, but not own it. To that end, ZKS carefully maintained their legitimacy as a co-

developer with equal IP rights, through legal agreements and carefully scheduled joint public

releases.

The enterprise product now contained no cryptography at all. In a further and even more

radical retreat from its founding vision, Zero-Knowledge decided in August 2001 to pull the plug

on the Freedom network. No sales campaigns had been effective – neither the attempts to

viralize the product within certain consumer market segments, nor the attempts to target early

adopters across segments, nor channel marketing, nor corporate sales. The 2002 prospectus

suggests that between July 1, 1999 and July 1, 2001, Zero-Knowledge spent nearly 1.5 million

CAD on network operations alone, against nearly half a million in licensing fees from Freedom

users. Zero-Knowledge simply could no longer afford to operate the network.

On October 4, users logging in to Freedom were greeted with a message “strongly

recommending” that they visit a hot-linked URL for “a very important announcement regarding

the current status and the future of the Freedom network.” That announcement read, in part:

“I regret to inform you that Freedom Premium Services - Anonymous Web Browsing

and Private Encrypted Email - will be discontinued as of October 22nd, 2001…

“This decision was not taken lightly. It reflects the ongoing high cost and limited

returns of operating the Freedom Network - the engine that drives the encryption and

anonymity process. This is especially true since our customers and partners increasingly


choose to purchase ready-to-use solutions that provide security and safety online - such as

personal firewall, password manager and keyword alert - rather than nym-based services.

“For the past two years we have worked very hard to develop and maintain a

sustainable private network and we thank you for all your support of our endeavor.. We

share your disappointment and we apologize for the impact this decision will have on your

online activities….”

The timing of the announcement, occurring as it did less than a month after the terrorist

attacks on New York and Washington DC, and around the time of the passage of the USA

PATRIOT Act, was horrendous. Still, Zero-Knowledge insisted that the attacks, and

governments’ response to them, had nothing to do with the decision to shut the network. That

decision had been made in August, before the attacks, and development of Freedom 3.0 had

proceeded since then on the assumption of the network’s closure.

Users, those who had sympathized with the Hill’s original vision, were terribly upset at

Freedom’s demise. It seemed another nail in the coffin of political, social, and economic

promise. Gone was the dream of running an international network of encryption machines

impervious to the FBI. Zero-Knowledge received poems, condolences, and diatribes mourning

the passage of Zero-Knowledge into just another Symantec or McAfee. Some customers offered

to pay up to three times the regular fees for the Freedom service, but even that came nowhere

near making up Zero-Knowledge’s shortfall.

This radical change of direction made sense from an economic perspective. However, it

produced crises in relations both within and outside of the company. Zero-Knowledge had to

engage in vital attempts to salvage their credibility, which had counted as a powerful asset in

Zero-Knowledge’s first years. The idea of Zero-Knowledge had been built on cryptography,

privacy, and really smart people, especially Stefan Brands and Ian Goldberg. Now cryptography

was gone, as were Brands and many other great employees. Zero-Knowledge faced an identity

crisis as well as a PR challenge.

The PR challenge was met by re-defining the notion of credibility. From its inception, Zero-

Knowledge had attempted to encompass contradictory publics. They had sought to attract and

resonate with the interests of communities of hackers, crypto-anarchists, venture capitalists,


police agencies, policy makers, and financial institutions. But they had also gradually been

coming to realize that their most vital alignments were with large, entrenched governmental and

corporate institutions, rather than with grass-roots activist movements. They now embraced this

realization fully and engaged in strategic rebranding to change their image in the eyes of those

who matter, and those who mattered were entities like IBM and American Express. Zero-

Knowledge no longer attempted to embarrass “big boys” to get publicity, as they had when Ian

Goldberg developed a hack to access the Intel chip’s serial numbers. “Issue” PR ceased entirely,

replace entirely by announcements of successful business alliances. Not only did the Zero-

Knowledge home page no longer support a privacy news archive, PR assiduously avoided any

suggestion that Zero-Knowledge products had political implications. For example, the enterprise

database management product had originally been “Privacy Rights Manager,” because Zero-

Knowledge shad then seen privacy rights as a “category” that they could dominate. Now it was

clear that that category didn’t exist, nor could Zero-Knowledge create it. Further, the mention of

“rights” was just too “activist and advocate-like” for their intended clients. So the product

became an “Enterprise Privacy Manager.”

At the same time, Zero-Knowledge changed its understanding of itself. Employees who had

joined for ideological reasons left for the same reasons. Those who stayed enjoyed a new sense

of normalcy and placid humility. Workdays were shorter, more focused and more productive.

Daily and weekly cycles recurred. No longer were they trying to “create a space.” Instead, they

were integrating themselves within existing industries. Gradually, a new identity emerged – that

of a dotcom which had survived.

The standards for success were completely revamped. In 1999, the goal was a billion dollar

capitalization. By 2002, it had become a positive cash flow. In 1999, the company was to be a

visionary thought leader empowering individuals and redistributing social power by providing

cryptographic techniques. By 2002, their highest hopes were that the consumer product would

run a distant third to Symantec and McAfee, and that IBM would somehow agree to pay

licensing fees for Zero-Knowledge’s enterprise product. Management were pleased and proud at

their ability to ride out those tumultuous years. They had met challenges as they arose. In 1999,

potential investors had demanded to see the ability to ramp up quickly, to staff the help desk in

10 languages, and Zero-Knowledge had done that. In 2002, investors needed to see austerity and


positive cash flow, and Zero-Knowledge had done that. They had been flexible enough to

change their ideas, the focus, direction, and style of their company. And it had paid off.

Eventually, the divorce from all of the political dreams with which Zero-Knowledge was

initially invested became public and final. In June 2004, Zero-Knowledge spun off the enterprise

division into a wholly owned subsidiary called Synomos. The following year, Zero-

Knowledge’s senior management changed the company’s name to Radialpoint, specifically to

distance themselves from public memories of Zero-Knowledge. This was just the recognition of

truly changed circumstances, since the new RadialPoint, whose business offering is to manage

subscriber services (such as firewalls, virus blockers and parental controls) for large and mid-size

broadband providers, no longer has any products, markets, or goals in keeping with its Zero-

Knowledge’s original incarnation.

Summing up And so Zero-Knowledge Systems did not survive as a corporate entity committed to social

change through the marketing of software-based pseudonymity services. The Freedom network

was to have been the revenue engine for Zero-Knowledge’s control of the privacy space. But in

making design decisions, Zero-Knowledge always chose cryptographic sophistication over

empirical economics or ease of use. The network was wildly expensive to operate, and the

service was initially slow and buggy. Moreover, it was unclear to the casual user, and even

sophisticated users, what one should do with a nym.33 The usefulness of strongly segregated

identities was not self-evident, nor was the interface facile enough to support experiment and

play.

The social problem that Freedom set out to solve was invisible; Freedom was “like a seat

belt for cars that don't ever crash, [or a] medicine for a disease that no one ever gets.” Because

privacy abuses happen behind the scenes: not only is one targeted based on personal profiles, one

is removed from target audiences based on those profiles. How does one know when one has

been denied an opportunity?

33 Phillips ICS


These factors hindered adoption by individuals, and Zero-Knowledge could find no third

parties to subsidize or support consumer use. They miscalculated the interests and the power of

ISPs, who were not self-consciously political actors. Users didn’t choose ISPs according to

their politics, nor did ISPs promote themselves as political choices. Interest portals could not be

recruited, either; privacy was for their users a peripheral and vague concern.

Zero-Knowledge’s strategy had been to “change human behavior on so many levels”, to

“convince people that there was a problem that they didn’t perceive; that that problem could be

solved … by purchasing in a different way that they were used to …and using … a computer in a

different way than they’re used to.” They had expected their own fervor to be hailed and shared.

Instead, it was greeted with silence.

Private credentials and certificates, too, were developed in the context of a market model

that proved fantastic. They would have been crucial, and wildly profitable, in a world organized

to privilege and value non-identified transactions. They were a faithful child of a grandiose

vision – the development team could have tackled movie tickets or telephone service payment

processing systems as the first application. Instead, they went for e-cash, envisioning a long road

to a huge payback, betting that revenue from the Freedom network would support them. Instead,

the Freedom network and client faltered, and Zero-Knowledge chose to fall back and protect

them, believing that they were necessary vehicles for any future certificate based applications.

As the financial situation became more desperate, Zero-Knowledge simply could not spend any

money, time, or energy on hopes for the future, and dropped all interest in private credentials.

PRM was initiated in response to market forces, as potential adopters approached Zero-

Knowledge with their problems. Nevertheless Zero-Knowledge was not able to align its

products with the interests of those adopters. First, many potential clients, especially online data

collecting and ad serving companies, were in the same market bubble with Zero-Knowledge, and

had to drop their pursuit of the problem just as Zero-Knowledge needed their revenue most.

Apart from this historical happenstance, though, there were deeper conflicts. Data holders

simply had no interest in giving up control of their data. It was their data; they did not recognize

that data subjects had any property or moral right in it. Nor were they being forced into

recognizing that right by the data subjects. There was no effective consumer demand for


privacy, no apparent competitive advantage to offering it. Data collectors were under some

pressure from regulations and laws, but those regulations, where they held at all, permitted data

holders either to de-identify information or to obtain consent from the data subject. Collectors

were much more interested in pursuing the option of obtaining and managing consent, an

application for which for which PRM was overbuilt.

The Enterprise Privacy Manager has proved successful within the terms in which it was

developed. Zero-Knowledge, after assiduously aiming for integration with the practices of those

industries subject to privacy regulation, achieved that integration. They did this, in part, by

linking themselves with the power and position of IBM. Recently, as they expected, they entered

into an intellectual property suit with IBM.34 This suit represents success – a real, resistant

relationship with a stable and enduring entity.

Despite the market research, and the selling EPM has been difficult. Zero-Knowledge (now

Synomos) have had to convince companies that they needed more than a policy and a lawyer.

They needed a tool to let that lawyer (or the CPO) discover if practice complied with policy, and

EPM was the tool they needed. Nevertheless, they have eventually been able to obtain consensus

that, unlike Freedom, EPM addressed a “problem for people who will spend money.” The

problems were real, the target customers were aware of them, and were used to spending money

to protect their interests.

34 cite suit docs

ZeroKnowledge the Story (2)

Documents

Transcript of ZeroKnowledge the Story (2)