The company that pushed encryption and networking technology to the limits to enhance people's privacy said Thursday that it has decided to close its flagship anonymity network and focus on security software for home users. Security software maker Zero-Knowledge Systems announced that it would shut down the premium service component of its Freedom Network, which let people surf the Internet and send email with almost complete privacy by using pseudonyms. Although more than 70,000 people signed on to the free test of the service two years ago, the swell of interest didn't wash up more than a small number of paying subscribers, said Austin Hill, co-founder and vice president of the company. "Scaling the network, the price of bandwidth -- there's a significant cost with running an overlay network, and we didn't get enough interest to be able to offer the service with that price tag," he said. After announcing the service in 1998 at the Def Con hacking convention, it took the company almost 18 months to release the first version of the product. Encryption experts designed the service so that the identity of the Internet surfer could be hidden by hopping through several computers, each jump increasing the difficulty of matching up a Web user's online identity with that person's real one. The network was designed so that even a court order could not reveal a Web user's identity because even the company did not know who used which identities and the information was not stored on the system. The Montreal-based company will now focus on its Freedom 3.0 suite of security software. The package includes a personal firewall, a password manager, an ad manager and a cookie manager, placing the software in direct competition with Symantec's Norton Internet Security and Network Associates' McAfee Internet Security products. The company plans to also add an antivirus component to its consumer offering to better compete with Symantec and Network Associates products. The move marks a large step for Zero-Knowledge and Hill -- who once said his company "was out to change the world" -- from a hotbed of pro-privacy advocacy to a pure software business. "I think the company has matured," Hill said. "Some of the roles that we were going to play before, we are not going to be in." Chris Christiansen, senior analyst for market researcher IDC, agrees. "The new privacy model is not so much concerned with consumer privacy but protecting corporations from privacy violations," he said. "I think this is an affirmation that they are going in a new direction and they are cutting themselves loose from a losing prospect." Zero-Knowledge is moving along those lines, with a new application in development--dubbed privacy rights management software--that aims to help companies audit their use of customer information to prevent misuse. However, the decision to drop the Freedom Network is another chip off the movement to strengthen privacy on the Internet, which has suffered several setbacks in recent days. On Thursday, the Federal Trade Commission -- the agency spearheading the attack on businesses for inadequate privacy safeguards -- did an about-face. In a speech, FTC chairman Timothy Muris, a Bush administration appointee, said that no new legislation is needed to regulate privacy. The decision came as the Bush administration and Republican lawmakers fought to aid law enforcers' ability to search for terrorists in the wake of the September 11 attacks with several new pieces of legislation that significantly weaken citizens' privacy. Even the ability to use strong encryption, the granting of which has been considered a great win for privacy advocates, is again under renewed attack. Senator Judd Gregg has suggested that all encryption software should contain a backdoor to allow easy access to the scrambled contents by law enforcement. Zero-Knowledge's Hill stressed that the decision to pull the service was made before the 11 September terrorist attacks on the World Trade Center and the Pentagon. However, sticking by a service that could be used to hide wrongdoers would have been an unpopular decision, said William Malik, security research director for market analyst Gartner. "An amazing number of their customers are probably people you wouldn't want in your neighborhood," he said. Although Zero-Knowledge executives have repeatedly denied such accusations, Hill admits that the customers of the service have always been part of the hacker fringe or cyberrights advocates. "When we released the tool, we had strong interest, but we were dealing with early adopters -- the civil libertarians, the cypherpunk crowd," he said. "But when you deal with the home consumer, the issues are different." IDC's Christiansen agrees that the home consumer is a different beast. "For the most part, consumers are interested in privacy, but for a 10 percent coupon they are willing to give away most of their information," he said. "It's a hard model to make work." The fate of the network is still undecided, Hill said. The company has received queries from research labs and universities about the Freedom Network technology, and the service could find itself in some future incarnation of academic or open-source projects. See the Internet News Section for full coverage. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Telecoms forum. Let the editors know what you think in the Mailroom. And read other letters.