Balancing Privacy with Revenue Potential

The issue of privacy will become murkier as social networks encounter greater pressure from investors to pursue new revenue opportunities — even if they infringe upon their users' privacy. LinkedIn, the social network for professionals, took a funding round in October that included cash from SAP Ventures. The move caused industry followers to wonder if SAP, which makes business software for sales people to track and manage customers, could someday tie their applications into LinkedIn's database. Such a decision, they say, could result in a Beacon-like backlash.

"If they could expose that data and provide context for sales people, that would be huge," Jonathan Yarmis, an industry analyst, told CIO in October. "But there is a risk that users say this is not what I signed up for.'"

LinkedIn, which did not return several requests for comment for this article, hasn't enacted such a strategy to date, but it does sell premium subscriptions to recruiters, giving them far-reaching access to the LinkedIn database of 36 million people that most users of the free service don't enjoy.

For Facebook, the fact that users might set their privacy settings to a high level doesn't have an immediate effect on the advertising its sells on its own site. Whether someone shares his status messages with 20 people or 200, Facebook can still see all that information either way to generate ads. Facebook can monetize the user by culling non-personally identifiable information.

"What we do is abstract profile information, and the information flows of the site, into keywords that advertisers can target their advertising against," Kelly says. "But the advertisers don't get a list of who matches those keywords, so it doesn't really impinge upon the users' privacy interests."

But experts say it's undeniable that closed-off users would be bad for Facebook's business because such users hinder network growth, which to date remains staggering for Facebook. "They align the service around openness and that overall network effect," Stutzman says. "Openness drives traffic, and traffic brings attention to the ads, which is the lifeblood of the service financially."

For Facebook, the issue of privacy during the next few years extends beyond the boundaries of its own site. Facebook Connect represents the company's next major technological iteration. Principally, Connect allows third-party websites to insert a digital badge on their sign-up pages using their Facebook name and password. As people take their Facebook identity with them around the Web, Kelly and his group will have to ensure that their privacy settings are maintained.

He says Connect achieves that task.

"It's one of the key features of Connect and how Connect differs from most approaches of how to do single sign-on," Kelly says. "That connection back to your Facebook privacy settings and the ultimate respect of those through that process on thousands of websites is an incredibly powerful advantage."

It's also a powerful responsibility.

Staff Writer C.G. Lynch covers consumer and social technologies for CIO. He can be reached at clynch@cio.com. .