Facebook’s Privacy Problem Is Going to Kill Them

If Facebook doesn’t get its act together with regards to privacy, the newly minted empire will soon start to crumble. There is already a small movement of people who are dropping-out of Facebook, but I suspect these numbers, while somewhat vocal on the internet, are an insignificant portion of those that continue to participate.

However, hardly a story discussing the risks leading up the Facebook’s IPO left out some mention of privacy problems. Whether it was the FTC settlement last year, or pending lawsuits, many analysts considered (and probably still do) Facebook’s lack of a solid reputation for respecting the public’s privacy rights as a huge risk to the company’s long-term success.

Personally I believe that the only reason why Facebook was able to take a laissez faire attitude towards privacy for so long this that its service is free. Consider what Dan Ariely documents in Predictably Irrational: Through rigorous experiments Ariely finds that even though we can intuitively recognize that every exchange has an upside and downside, when something is free, we seem to forget the downside.

Or more specifically we do not take into account the actual cost versus value of the transaction. It is exactly this mechanism of our human nature that Facebook leverages to its advantage. When we sign up for Facebook, or any of the thousands of other services that require no monetary payment, we don’t take into account that there is a cost—a transfer of our personal information.

However, I believe the time of that model is likely drawing to a close as people are beginning to understand that what companies offer largely benefit the company more than it does the consumer. As a consequence of this realization people are becoming more distrustful and hesitant to readily hand over their personal information.

Today we learned that Facebook’s vote on whether to adopt its new privacy policy and user rights policy failed to draw enough votes to make a binding decision. Facebook’s corporate rules require 30% of current users to vote for such a change and only a small fraction of them did. Chatter around the internet is pretty angry. Apparently where they should have “rolled out all the stops” to bring attention to the vote, they took a more minimalist approach leaving the appearance that the whole vote was nothing but a publicity stunt.

The public’s consciousness is a fickle beast. Currently people are turning a blind eye to the lower-level grumblings of the privacy-sensitive but for how long. There is a tipping point where the grumblings change to the popular sentiment. And that tipping point is approaching rapidly for Facebook.