Will Facebook Face-Off With Congress Over Data Privacy?

Last Updated Apr 22, 2010 3:40 PM EDT

At its recent f8 conference, Facebook introduced plans to deeply embed itself everywhere on the web by tying together social graph information -- known to the rest of us as preference and behavioral data -- from many sites. This tool would make Facebook essential to how many companies do business on the web, ensuring that Facebook will avoid MySpace-style decline, and creating a trove of marketing data that might even make Google (GOOG) envious.

But I think such ambitions will again land the company in front of Congress, and might even be enough trigger regulatory control of online marketing -- something the industry has dreaded for years. As Facebook gets larger and more prominent, the I-figured-you-wouldn't-mind strategy becomes increasingly difficult to sustain.

Part of running a business is understanding risk, not just in competition or finances, but in the impact of regulation. Congressional skepticism about industry self-policing in online marketing and privacy has been growing strongly over the years. When a company like Facebook has had a rocky relationship with the topic, pretending that it isn't an issue is naïve.

Just last summer the company had to appear before two House subcommittees, along with Yahoo (YHOO) and Google (GOOG), over privacy issues. As I wrote at the time:

The question can get particularly sticky for Facebook, as users fill out extensive profiles, often providing significant details about their lives, tastes, and interests. The company insists that it protects users' privacy: "The FTC's behavioral advertising principles recognize the important distinctions made by Facebook in its ad targeting between the use of aggregate, non-personally identifiable information that is not shared or sold to third parties," [Facebook Chief Privacy Officer Chris Kelly's] remarks read, "versus other sites' and companies' surreptitious harvesting, sharing and sale of personally identifiable information to third party companies."
The pressures that I mentioned high tech firms faced last June haven't gone away. If anything, they've become more acute. Consider:
  • Public concern over privacy
  • A quickly developing online market
  • The potential for technology to provide a 1984-type surveillance
  • Pressure on elected officials from a public unhappy with corporate, financial, and political scandals
  • The relatively immaturity of many high tech companies
Facebook has seen negative customer reactions over privacy issues, like those over its Beacon marketing program in 2007. So what did the company announce at its recent conference? Its Open Graph initiative that expands what Facebook and its partners can collectively know about consumers and how much sharing becomes active by default:
Nevertheless, it is imperative that users who have concerns about privacy make sure they read and understand what information they are making available to applications before using them. Users need to be aware that when they "Like" an article on CNN, that "Like" may show up on a customized view that their friends see. Public no longer means "public on Facebook," it means "public in the Facebook ecosystem." Some companies, like Pandora, are going to go to great lengths to allow users to separate or opt out of linking their Pandora and Facebook accounts together, but users can't expect all apps and sites to take that approach. My advice to you: Be aware of your privacy settings.
Technically, Open Graph may have changed little in what Facebook was doing. But it has expanded the field, and given the current state of things, this is like waving a flag in front of a bull. Only, instead of chasing you, this bull has the power to legislate.

Smart business plans address significant risk areas, and if your strategy depends on reducing consumer privacy, the potential for the government to step in and say "No!" is a very real danger. Of course, Facebook could take the smart route and actively work with Congress to find an approach that politicians would welcome. But given the company's track record, I doubt that has happened.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.