Could Privacy Be Facebook’s Waterloo?

In the weeks since Facebook launched a suite of new features at its f8 conference, privacy has become a looming problem for the rapidly-growing social network. It was already making headlines, due to the changes recently made to users’ settings and the way information is shared with others, but in the past week, the issue of privacy has gone from mere concern to red-hot brushfire.

One of the central issues is the new “instant personalization” feature, which Liz Gannes has described as a real “privacy hairball.” The feature, which allows sites to display a “personalized” version of their service without users having to ever log in, is “opt-in” by default. That’s raised concerns for many, including four senators, who voiced those concerns in a letter to Facebook; one of the senators involved then followed up with a letter of formal complaint to the Federal Trade Commission.

This week, the campaign against Facebook continued to escalate. Chris Kelly, the former privacy chief at Facebook (who happens to be running for Attorney General in California) came out against the new features, particularly the auto “opt-in” nature of some of the changes. Then, a group of 15 privacy advocates and consumer agencies, including the Electronic Privacy and Information Center, sent a letter of complaint to the FTC, asking it to step in and force Facebook to change its behavior.

Grumbling users are fairly commonplace when you’re as big a company as Facebook. But when the government and public advocacy groups start writing letters to the FTC, things become far more serious — especially when the government is proposing new online privacy legislation. Facebook can’t risk appearing uninterested, or it could wind up being sanctioned by the feds, or worse.

So what can the company do? Several things leap to mind:

  • Apologize: This is almost always the best way to rebuild trust. Users who feel betrayed by the changes need to feel that someone is listening.
  • Clarify: Facebook needs to do a better job communicating its existing privacy guidelines, how to modify them, what has changed, etc. The company probably thinks it’s already doing this. Clearly, some disagree.
  • Negotiate: It’s obvious that some forces within the government, along with various consumer groups, want to use privacy as a stick with which to beat Facebook and to advance various agendas they have of their own — whether to curry favor with others in government or to draw attention to issues they see as important. The company needs to sit down with them and find a middle ground somewhere, or at least look like it is trying.
  • Change: As much as Facebook thinks it needs some of the new features in order to aggregate data for advertisers or appeal to corporate partners, it might have to scale back some of what it has been hoping to do, including the “instant personalization” beta test.
  • Learn: As long as Facebook can show it’s trying to adapt to what users want, it could salvage much of the bruised relationship it currently seems to be developing. But only if it actually starts doing things differently.

Privacy concerns might seem like a tempest in a teapot for a network the size of Facebook, but the potential repercussions of not taking action could be severe. In a worst-case scenario, the company could be sanctioned by the Federal Trade Commission or some other federal authority, which could seriously impact its ability to do business. That in turn would threaten the estimated $20 billion market value the company has reportedly developed, as well as any chance of a potential IPO.

The reality is, Facebook needs to have a friendly relationship with its users, or it simply won’t be able to achieve the kinds of targeted advertising and marketing goals it clearly has in mind as it tries to scale up its revenues. Anything that gets in the way of that —privacy concerns or otherwise — is a serious issue, and one the company needs to fix, pronto.

Question of the week

Can Facebook overcome its growing privacy problems?
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