Back in May when Facebook went public, I posted here that the company would have life a little tougher as a public company. You didn’t need a crystal ball to see that, particularly if you’ve ever worked for a public company on the investor relations side.
It’s not enough for a publicly traded company to simply do a good job or even be the best at what it does. No matter what, if it doesn’t make its quarterly earnings estimate, it fails. And if it fails, it’s stock valuation goes down and shareholders (owners) lose money. Since no one likes losing money, that puts management’s job security at risk, particularly if such performance doesn’t turn around.
Looking back, all of this came down hard on Facebook when immediately after the IPO, the stock started to drop and has never really recovered from that launch price.
The other thing I brought up just before the IPO was that Facebook would have to answer the question from investors: ‘What will you do with all that data on those millions of ‘free’ members?’
Actually, as an update, today Facebook announced the company now has over one billion members. But as impressive as it sounds, shareholders want to see financial returns ASAP, and that's where that data comes in.
Earlier this week, Facebook announced some of its plans for the data. The company has started to let marketers target ads to its members based on member email addresses and phone numbers, and based on their individual web browsing habits to other sites. Yes, other sites, not just on Facebook.
This means that if you are a member of Facebook, you can now be targeted based on your Internet habits and your phone number and email address will be used to identify you. Now, the company has said it will “aggregate” the data, meaning that your data will fall within groups of targeted consumers, and that you, personally will not be singled out.
But given Facebook’s track record, including here, of never seeking member permission for how it wants to handle data, there are no guarantees as to how your personal identifying information will be used or sold in the future.
The company is also selling ads that will follow Facebook users beyond the boundaries of Facebook. This idea isn’t totally new. Google does the same thing. The big difference, however, is Google uses your IP address and doesn’t really know who you are. That firm just knows the patterns of usage followed by anyone who uses your computer.
Facebook, on the other hand, knows your true identity. And it knows who you are by your phone number and email address. The company has instant access to all of the personal information you’ve decided to share on your individual Facebook page. It has access to content you have deleted. And it has access to data and information that’s been posted about you so long as you were “tagged.”
Now, multiply that by one billion. And then consider some scenarios where someone is willing to pay Facebook to drill down, not just for marketing, but for any other purpose that you can imagine. That can be a scary thought.
The Electronic Privacy Information Center last week filed a complaint with the Federal Trade Commission over this sort of thing. Part of the group’s argument is that while Facebook users may have anticipated receiving marketing messages from Facebook or while on Facebook, they never agreed at the outset to give Facebook voyeuristic access into what they do off of Facebook in “the real world.” David Jacobs, the group’s lawyer, told the Wall Street Journal, “’Now the rules have changed and this information is being matched or cross-referenced. There is an issue with changing the rules on people.’”
This is all academic now, but as a publicly traded firm, Facebook will be forced to find new and more creative ways to meet Wall Street’s expectations. The company will continuously run into new ethical challenges.
At the very least, this can be a distraction. At worse, it could cause competitive problems for Facebook. Sure, it has one billion members today, and its presence on the Internet is everywhere.
But MySpace has recently reinvented itself. I wouldn’t be surprised if its strategy is to position itself as a viable alternative when millions of users decide they no longer want to put their privacy in the hands of Facebook.