Microsoft did not make a representative available for an interview on the issue, but in a statement the company said it supported both well-crafted federal privacy legislation and efforts to promote self-regulation.

One privacy watcher is of the group's shift toward self-regulation.

"Given the positive publicity that the group generated a couple of years ago … this really does feel like a step back." said Michael Geist, a professor with the University of Ottawa. "It's an odd thing to see happening when self-regulation is hardly the flavor of the month."

While the Forum may not be taking the lead in any proposed legislation, it probably won't harm legislative efforts either, said Ari Schwartz, chief operating officer with the Center for Democracy and Technology. "Some of the people that started this project were hoping that business could help lead that process," he said. "I think the leadership is going to have to come from Congress."

Schwartz expects new federal privacy legislation to be proposed this year. Several such bills have been proposed unsuccessfully in the past.