Meme Stock Alfi’s Facial Recognition Ad Technology Fans Privacy Concerns

(Bloomberg) -- Alfi Inc., a small artificial intelligence software company, has ambitious plans to use facial recognition to target individualized ads to people as they walk through an airport, a shopping mall or stare at a screen in the back of an Uber.

The idea could resonate with an ad industry that’s grappling with the demise of tracking people across the internet through cookies. But the company, which has yet to sign up more than one advertiser, is also sparking some of the same concerns about privacy that has stymied even the more traditional tech giants. This disproportionate gap between its vision and its fundamentals has made Alfi a popular meme stock, subject to wide swings in its share price.Alfi’s software is designed to show ads to people based on their age, gender and ethnicity without specifically identifying the person. Using “small facial cues,” the company says it can then provide information to advertisers about a person’s reaction to a product.

An announcement in July that it plans to equip rideshare drivers with tablets to target ads to passengers caught the attention of two U.S. senators. Democrats Amy Klobuchar and Richard Blumenthal fired off a letter to the heads of the ride-hailing companies, claiming the program raises “serious concerns about privacy for your passengers.” Uber Technologies Inc. said in a statement to Bloomberg that it has no business relationship with Alfi — the company contracts with the drivers directly — and that drivers must comply with local laws and regulations. Lyft Inc. echoed the sentiment, and added that drivers may be deactivated if they collect passenger information in violation of local laws.

Alfi, founded in 2018 and based in Miami Beach, Florida, insists it doesn’t violate any privacy rules and is compliant with Europe’s General Data Protection Regulation, which imposes strict regulations on data collection, and California’s Consumer Privacy Act, which allows consumers to see all the data collected on them. The company says its system makes no attempt to identify viewers, doesn’t save images, and targets ads in an “ethical and privacy-compliant manner.” No viewer is ever required or requested to enter any information about themselves on any Alfi-enabled device, according to the company.

“We only use a sensor to detect simple metrics like age and gender,” said Paul Pereira, founder and chief executive officer of Alfi, in an interview. “Just the fact that we can pick up a gender on a predictive model without violating privacy puts us 50% ahead of everything that’s out there in the market today.”Read More: Activists Urge Retailers to Halt Facial Recognition Use

To reiterate that it’s not collecting personal information, Alfi makes the distinction that it uses facial detection, which analyzes demographics and emotions, not facial recognition, which stores data to identify an individual.

But data privacy advocates warn that whatever it’s called, the technology inherently invites abuse. “Alfi goes out of its way to say that it doesn’t gather images or recordings, but that’s not to say it can’t, and there are no laws that would require the company to disclose whether or not they did start gathering this information,” said Caitlin Seeley George, campaign director at Fight for the Future, an activist group.

Selling user data, another flash point for tech companies, is also part of Alfi’s long-term strategy. Cameras in the hardware monitor viewers’ reactions to the content in order to provide insights to advertisers. The company said subscriptions to engagement data including retina tracking, keyword recognition, voice intonation, and demographics will be sold to third parties “without compromising the identity of the end user.”

Brazil’s Sao Paulo airport already features some Alfi reactive screens and the company is expanding its tablet program for ride-hailing vehicles, which was in testing mode with about 500 drivers in South Florida, to about 13 markets in the U.S. The company aims to install 150,000 facial recognition screens in the back of rideshare vehicles by the end of next year.

More than 50,000 drivers have joined the wait-list to receive one of Alfi’s Lenovo Group Ltd. tablets, Pereira said. They’re driven by the promise of commissions as high as $325 a month, though some drivers who’ve been using Alfi screens in the initial early rollout have had trouble receiving pay, and others are skeptical about how the model will work.

“I’ve had it for almost two months and also haven’t received any pay, or any sort of news from Alfi on how we get paid,” said a Miami-area rideshare driver who spoke on the condition of anonymity for fear of continued payment delays.

Pereira said that while a driver payment system is fully operational, it hasn’t been used yet, because many advertising deals and other revenue streams are still pending. In the past, some drivers were given pre-paid gift cards, he said.

Indeed, Alfi’s monetization plans are still in the early stages. Alfi reported second-quarter revenue of less than $1,000 and a net loss of almost $5 million. A spokesperson said the out-of-home advertising market was severely impacted by Covid-19 but that Alfi has “multiple customers coming onto the platform.” The company expects to start reaping revenue from advertising in the third quarter. ​When it announced the national rollout of its rideshare partner program earlier this month, Alfi’s stock jumped 40%. The company, which became publicly traded in May, is no stranger to extreme share price moves as a meme stock, buffeted by retail traders who exchange news and rumors on internet message boards such as Reddit’s “ALFISTOCK” forum. Pereira said that retail traders are the “majority” of their base but that may not be such a bad thing.

These retail traders possibly helped bring Alfi back from the brink of collapse. At the end of March 2021, Alfi’s total current assets sat at about $113,000, and its auditors found “substantial doubt” about its ability to continue. By the end of June, company was flush with $20 million in cash thanks to an initial public offering and a share price that has doubled since its listing.

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