ATTRACTING INVESTORS like moths to a flame is Firefly Network, Inc. (www.firefly.com), a privately held firm in Cambridge, Massachusetts, that strives to make the Internet more consumer-friendly. Firefly CEO and co-founder Nicholas Grouf explains that the company's software products "enable online businesses and organizations to provide users with a highly personalized selection of goods, services, and information."

Employing passwords and aliases to ensure anonymity, individual users supply personal preference and choice information to online companies to create a profile or "passport" that reflects what they like, for example, in books or music. Online services equipped with Firefly's "relationship management" and "advanced personalization" software (such as bookseller Barnes & Noble or information provider My Yahoo!) digest this data and come up with products that match each user's tastes with a precision heretofore unimaginable. (Any purchases, of course, also augment a user's profile.) "It's the Holy Grail of marketing," says Grouf. Known as "collaborative filtering," this method of accumulating data has been a huge breakthrough for online commerce, with Firefly's software considered the pacesetter by many online businesses.

Grouf understood early on that to entice users to provide personal data, it would be both necessary and proper to offer something useful in return. With BigNote, for example, Firefly's own recently sold online record and music service, users would receive suggestions and audio samples of similar music after supplying information about favorite albums. They could also read and write reviews and "chat" with fellow fans.

Grouf is himself a musician and composer: his senior thesis at Yale, chosen as the best in his class, was a rock opera. Between college and HBS, Grouf held jobs at McKinsey and at Goldman Sachs, where he worked on M&As for clients in communications and technology. During his second semester at HBS, after hooking up with some software visionaries at MIT, Grouf wrote the business plan for Agents Inc., founded in March 1995 and renamed Firefly Network, Inc., in August 1996.

"Privacy, security, and consumer trust are essential to our business and to the development of all Internet commerce," notes Grouf. "We were the first company to have an annual privacy audit to review our privacy safeguards. And we've coauthored a proposal for an Open Profile Standard [OPS] that is widely supported by the online industry." OPS is based on the concept that users should get something of value for their personal information and that companies not only must have a user's ongoing consent to utilize such data but also must keep complete records of all data usage. Says Grouf, "It's a revolutionary business-customer compact: I believe consumers will demand it in the traditional marketplace as well."

- Garry Emmons