In his S-1 letter, CEO Mark Zuckerberg made it crystal clear: “We’re going public for our employees and our investors…. We made a commitment to them when we gave them equity that we’d work hard to make it worth a lot and make it liquid, and this IPO is fulfilling our commitment.”
It’s hard to deny that in building this equity, Facebook has also created value for its users—all of the alleged 850 million of them. But it’s also plain to see that it’s created value for advertisers, whose payments account for 85 percent of the company’s $3.7 billion in revenue, and the fear that the interests of advertisers might trump those of users after the company is publicly traded has brought Facebook to the center of a newly invigorated debate on online privacy.
Every time a Facebook user clicks the “Like” button or joins a group, he or she expresses an interest to his or her network of friends. But Facebook is also listening. The site’s ad sales are in the billions because it can use that information to target ads to massive audiences segmented according to behavior.
Using newly implemented features, Facebook is expanding the range of actions a user can take from “Like” to “Love,” “Bought,” “Want,” and an entire library of relevant verbs. Combined with other forms of data collection, it’s a behavioral gold mine.
“As advertisers, we’ve been waiting for this for centuries, and Facebook has provided it to us,” says Sinan Kanatsiz, chairman and founder of the Internet Marketing Association, an industry group with membership in the hundreds of thousands. Kanatsiz says that because of behavioral target marketing, advertisers are increasingly looking to social media for primary spending.
“When we look at CPMs compared to other online marketing mediums, we still feel that Facebook is underpriced,” he says, “They’re definitely paving the way to a multi-multibillion-dollar advertising medium.” Analysts at eMarketer predict that although its growth rate is on the decline, Facebook’s worldwide ad revenue will still top $5 billion by the end of 2012.
The value is in the data. As Bloomberg Businessweek’s Brendan Greely notes sharply:
“…we are not their customers. We are their product. Or rather, when we use their services for free, information about our habits, friends and preferences becomes their product, which they then sell to the companies of the Digital Advertising Alliance—their customers.”
In Facebook’s super-efficient, high-desert-air-cooled Prineville, Oregon, data center are over 30,000 servers, many custom-designed, that store and serve over 100 petabytes of such information. There has been a backlash from users who oppose the data’s collection, partly because of the prospect that many Facebook users don’t understand the extent to which it’s happening, and there has been a widespread call for greater privacy awareness and strict legislation.
“I can’t imagine anyone’s going to say with a straight face, ‘Yes, users understand what’s happening on Facebook,’” says Eric Goldman, director of the High Tech Law Institute at Santa Clara University. “It seems to me that there’s an enormous pressure on Congress to do something about Internet privacy, but what they’ll choose to do is uncertain.”
That’s because the problem of Internet privacy, Goldman believes, is unclear. Of Facebook users unwittingly giving up behavioral information as a commodity, he says, “Sounds like the American way,” as long as there’s no harm to users.
“If there’s some unwitting activity taking place and it’s making life better, that’s a win, not a loss. In fact, it’s a double win because [the user is] getting a positive outcome and spending no extra effort to get it.”
On February 23rd, the White House held a press conference to propose the Consumer Privacy Bill of Rights. Although it’s important as a signal that lawmakers are looking more closely at the debate, and commendable in its suggestions of openness and worldwide standard practices, the bill doesn’t have any industry-upending results. The most impactful measure mentioned is that companies that command a major share of Web traffic make an “FTC-enforceable commitment” to a Do Not Track button on browsers, and some in the industry even doubt the effect the much-discussed button will have.
“[Users] don’t really care at the end of the day because it’s not affecting their day-to-day life if they’re being served up certain advertisements based on their behavior,” says Kanatsiz of the IMA. “You’re only going to have less than 1 percent of 1 percent that opt out.”
The push for online privacy legislation seems fueled at least in part by paranoia: users aren’t comfortable with a company that owns gigabytes of their benign personal data extolling “the hacker way” in its S-1 letter, and they also don’t like to feel taken advantage of. But lawmakers need to be careful that they don’t hamstring tech sector growth in their quest for an ill-defined idea of privacy.
Professor Goldman of SCU notes that we wouldn’t have Google circa 2011 if Google circa 2001 had faced onerous legislation. “I don’t like to talk about privacy as an outcome or a deliverable,” he says. “We often talk about different things when we mention privacy, and we often talk past each other as a result,”
And while we do, somewhere in the high desert of Oregon, racks and racks of servers glow LED blue and ominously hum.
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