Privacy and Building a Sustainable Business Model

24 May 2010 by Randall Helms, No Comments »

The biggest social media news story in recent weeks has been the controversy over Facebook’s privacy policies:

Facebook, MySpace and several other social-networking sites have been sending data to advertising companies that could be used to find consumers’ names and other personal details, despite promises they don’t share such information without consent …

Advertising companies are receiving information that could be used to look up individual profiles, which, depending on the site and the information a user has made public, include such things as a person’s real name, age, hometown and occupation …

The sites may have been breaching their own privacy policies as well as industry standards, which say sites shouldn’t share and advertisers shouldn’t collect personally identifiable information without users’ permission. Those policies have been put forward by advertising and Internet companies in arguments against the need for government regulation.

The problem comes as social networking sites—and in particular Facebook—face increasing scrutiny over their privacy practices from consumers, privacy advocates and lawmakers.

After several weeks of steadily growing criticism, Facebook CEO Mark Zuckerberg has begun to backtrack somewhat, promising a simplification of Facebook’s increasingly Byzantine privacy controls:

The biggest message we have heard recently is that people want easier control over their information. Simply put, many of you thought our controls were too complex … There needs to be a simpler way to control your information. In the coming weeks, we will add privacy controls that are much simpler to use. We will also give you an easy way to turn off all third-party services. We are working hard to make these changes available as soon as possible.

What’s interesting to me about this situation is that it illustrates quite precisely how difficult it is for Facebook to balance the satisfaction of its users with the needs of the advertisers that it must satisfy if it is to turn its huge traffic flows (it is now America’s most-visited website, for instance) into commensurate profits. Apparently, Facebook is due to reach profitability this year, but the viability of its business model remains open to question, particularly if privacy concerns deepen among the user base, making Facebook less able to sell advertisers the ability to target microscopically precise groups of users.

The reality is that Facebook is walking a tight line, because the reality is that its users are the product, but at the same time, a product that lives, breathes, and fires off angry blog missives is a very different thing from a widget or a bar of deoderant or a software package, and so Facebook must always be careful not to alienate their users.

Interesting times ahead.

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