WASHINGTON -- Pioneering privacy firm Zero-Knowledge Systems is pulling the plug on the Internet's most famous anonymity service.
The Montreal company said Thursday that since not enough people had signed up for the company's flagship Freedom product, the network would cease to exist on Oct. 22.
Once viewed as the world's most promising privacy startup, ZKS seems to have realized a harsh truth: Few people will pay extra to cloak their identities while browsing the Web or sending e-mail.
While ZKS won't officially disclose figures, people close to the company describe sales of the $49.95 Freedom software as "abysmal," and the company has been casting about for other ways to make money. Last October, ZKS announced a privacy consulting service, and this week the firm indicated it would be focusing on security software instead.
"Essentially this is about moving our consumer product offerings to where the mass market of privacy and security-conscious customers is," says ZKS spokesman Dov Smith.
While few customers may have materialized, ZKS won acclaim from reviewers and technologists for its innovative approach to preserving anonymity, which became the first commercial product to use ideas that had been largely theoretical before. The chance to design the Freedom network lured top cryptographers and programmers from around the globe, and at one point ZKS boasted nearly 300 employees.
ZKS quickly became a fixture in the privacy community, hosting expensive bashes at conferences like Computers, Freedom and Privacy and a reception at this week's Privacy 2001 conference in Cleveland, Ohio. Its haunting, eerie magazine advertisements for Freedom were among the first marketing campaigns to emphasize electronic privacy for consumers.
But by March 2001, the dot-com crash and increasingly jittery investors prompted ZKS to announce layoffs of about one-quarter of its staff. At the time, ZKS also said it had raised an additional $22 million from a Reuters venture capital fund.
As of Oct. 11, Freedom users will no longer be able to receive incoming mail. On Oct. 22, "all the Freedom servers will be taken offline," the company says.
This doesn't mean the Freedom product will be disappearing. In a press release sent out Thursday, ZKS announced Freedom 3.0 and said it would include a personal firewall, a cookie manager and an ad-blocker.
That requires far lower ongoing expenses than Freedom, which preserved users' anonymity by bouncing e-mail and Web browsing traffic through a network of expensive servers. But it's far less exciting a product -- and will likely face tough competition from other firewalls and cookie-blockers already on the market.
One engineer who worked at a company ZKS had approached for a partnership described a recent meeting this way: "I asked them if they thought Freedom was actually going to make any money, and the biz-dev guys squirmed like they had messed their pants. They tacitly talked about trying to turn into a consulting company that helped other companies build privacy into their products. I was nice about it, but gave them the don't-call-us-we'll-call-you."
Other companies still offering anonymity-preserving services include Anonymizer.com -- a far smaller firm that is profitable -- Safeweb.com and SecureNym. SecureNym said Thursday that "any Freedom user who contacts us using a Freedom nym will be given a SecureNym e-mail account, without charge, for a six month period."
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Wired News: Why did you discontinue the Freedom network?
Austin Hill, a co-founder and chief strategy officer of Zero Knowledge Systems: It was really in relation to a business decision and feedback from our market. A number of years ago when we started the service, we received support and feedback from the early market. We've seen the demands for users change. There wasn't just a lot of strong interest in the network service, in the premium service.
WN: Did you ever try and sell off that division of the company?
Hill: We're privately held and we don't comment on corporate development or sales. We have been approached by some people who are interested in the technology and that is research related, people who understand the network privacy layer. We're looking at opportunities as they come by.
WN: Did you receive any political pressure to discontinue Freedom?
Hill: Not at all. The decision was made well before this past summer. We were beta testing the client with that code removed way before. There was no pressure from any organization.
WN: Was there any evidence the attackers involved in the Sept. 11 attacks used Freedom?
Hill: Not at all. Nothing that would lead us to even suspect it. We've had very few incidents at all, mostly with Usenet, with people exercising their freedom of speech in Usenet posts. The service has been very easy to manage in terms of user response.
WN: Why were users given such short notice?
Hill: Once we had the new version of the software out we wanted to discontinue the service as soon as possible because there is a significant cost to operating that network. A key part is the seven-day element, to stop accepting e-mail that specifically is related to the seven days. The other issue is that as we reduce the size of the model the security of the network changes. We don't have a lot of interest in continuing to offer a service where the security model was reduced over a long period of time.
WN: How many users will be affected by the shutdown?
Hill: We don't discuss that.
WN: What were the costs to operating the network?
Hill: We won't discuss that.
WN: Does eliminating this product create a void in the marketplace?
Hill: Some of the feedback users gave us showed they are aware of other private browsing services. The reason they were so endeared to ours were our level of security, and our transparency. A certain number of users are disappointed that that is no longer available. I believe overall that is a very small market and that is not indicative of what the mass market is feeling. I think there is not a huge gap. They are left without a level of computer security, but that's what happens when the market doesn't want it.
WN: Did you consider raising prices?
Hill: We reviewed a number of options and potential situations. We looked at where we spent our time, as well as the time spent on managing a code base, when some of our development features could be used to further enhance other products. Unfortunately, when you're a leading edge company pushing the edge of things, sometimes you're ahead of the market.
WN: What are you going to do with the computers on which the data is stored?
Hill: We are doing an orderly wind-down that is encrypted. We keep the purchase data for as long as our agreement with the credit card companies obliges us to -- I think that is six months -- and then wipe it out. But that can never be linked to online information. All of that data will dissolve.
Benjamin Polen contributed to this report.
