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CASE STUDY - 1
FACEBOOK: MANAGING YOUR PRIVACY FOR THEIR PROFIT
Facebook is the largest social networking site in the world. Founded in 2004 by Mark
Zuckerberg, the site had over 500 million worldwide users as of October 2010, and
has long since surpassed all of its social networking peers. Facebook allows users to
create a profile and join various types of self-contained networks, including collegewide, workplace, and regional networks. The site includes a wide array of tools that
allow users to connect and interact with other users, including messaging, groups,
photo-sharing, and user-created applications.
Although the site is the leader in social networking, it has waged a constant struggle
to develop viable methods of generating revenue. Though many investors are still
optimistic regarding Facebook?s future profitability, it still needs to adjust its business
model to monetize the site traffic and personal information it has accumulated.
Like many businesses of its kind, Facebook makes its money through advertising.
Facebook represents a unique opportunity for advertisers to reach highly targeted
audiences based on their demographic information, hobbies and personal preferences,
geographical regions, and other narrowly specified criteria in a comfortable and
engaging environment. Businesses both large and small can place advertisements that
are fully integrated into primary features of the site or create Facebook pages where
users can learn more about and interact with them.
However, many individuals on Facebook aren?t interested in sharing their personal
information with anyone other than a select group of their friends on the site. This is a
difficult issue for Facebook. The company needs to provide a level of privacy that
makes their users comfortable, but it?s that very privacy that prevents it from
gathering as much information as it would like, and the more information Facebook
has, the more money it earns. Facebook?s goal is to persuade its users to be
comfortable sharing information willingly by providing an environment that becomes
richer and more entertaining as the amount of information shared increases. In trying
to achieve this goal, the site has made a number of missteps, but is improving its
handling of users? privacy rights.
The launch of Facebook?s Beacon advertising service in 2007 was a lightning rod for
criticism of Facebook?s handling of its private information. Beacon was intended to
inform users about what their friends were purchasing and what sites they were
visiting away from Facebook. Users were angry that Beacon continued to
communicate private information even after a user opted out of the service. After
significant public backlash and the threat of a class-action lawsuit, Facebook shut
down Beacon in September 2009.
Facebook has also drawn criticism for preserving the personal information of people
who attempted to remove their profiles from the site. In early 2009, it adjusted its
terms of service to assign it ownership rights over the information contained in
deleted profiles. In many countries, this practice is illegal, and the user backlash
against the move was swift. In response, Facebook?s chief privacy officer, Chris Kelly, presided over a total
with some of the most vocal critics of the old policies, including the previously
mentioned protest group?s founders. In February, Facebook went forward with the
new terms after holding a vote open to all Facebook users, 75 percent of whom
approved. The site now allows users either to deactivate or to delete their account
entirely, and only saves information after deactivation.
In late 2009, tensions between Facebook and its users came to a head when the site
rolled out new privacy controls for users, but had adjusted those settings to be public
by default. Even users that had previously set their privacy to be ?friends-only? for
photos and profile information had their content exposed, including the profile of
Zuckerberg himself. When asked about the change, Zuckerberg explained that the
moves were in response to a shift in social norms towards openness and away from
privacy, saying ?we decided that these would be the social norms now and we just
went for it.?
The fallout from the change and is still ongoing, and more privacy problems keep
cropping up. In October 2010, Facebook unveiled new features giving users more
control over how they share personal information on the site with other users and
third-party applications. These include a groups feature allowing users to distinguish
specific circles of ?friends? and choose what information they want to share with each
group and whether the groups are public or private.
Shortly thereafter, a Wall Street Journal investigation found that some of the most
popular Facebook applications (apps) had been transmitting user IDs? identifying
information which could provide access to people?s names and, in some cases, their
friends? names?to dozens of advertising and Internet tracking companies. Sharing
user IDs is in violation of Facebook?s privacy policies.
All these privacy flaps have not diminished advertiser interest. Facebook serves ads
on each user?s home page and on the sidebars of user profiles. In addition to an image
and headline from the advertiser, Facebook ads include the names of any user?s
friends who have clicked on a button indicating they like the brand or ad. A Nielsen
Co. study found that including information about individuals a person knows in an ad
boosted recall of the ad by 68 percent and doubled awareness of a brand?s message.
To determine what ads to serve to particular people, Facebook abstracts profile
information into keywords, and advertisers match ads to those keywords. No
individual data is shared with any advertiser.
However, it?s still unclear how much money is there to be made from advertising on
Facebook. The site insists that it doesn?t plan to charge its users any kind of fee for
site access. Facebook?s 2010 revenue was expected to approach $1 billion, which is a
far cry from a $33 billion private market valuation. But the site has already become a
critical component of the Web?s social fabric, and Facebook management insists that
it?s unworried about profitability in 2010 or the immediate future. Sources: Emily Steel and Geoffrey A. Fowler, ?Facebook in Privacy Breach,? The Wall Street Journal,
October 18, 2010; Jessica E. Vascellaro, ?Facebook Makes Gains in Web Ads,? The Wall Street
Journal, May 12, 2010 and ?Facebook Grapples with Privacy Issues,? The Wall Street Journal, May
19, 2010; Geoffrey A. Fowler, ?Facebook Fights Privacy Concerns,? The Wall Street Journal, August
21, 2010 and ?Facebook Tweaks Allow Friends to Sort Who They Really ?Like,?? The Wall Street
Journal, October 5, 2010; Emily Steel and Geoffrey A. Fowler, ?Facebook Touts Selling Power of
Friendship,? The Wall Street Journal, July 7, 2010; Brad Stone, ?Is Facebook Growing Up Too Fast??
The New York Times, March 29, 2009; and CG Lynch, ?Facebook?s Chief Privacy Officer: Balancing
Needs of Users with the Business of Social Networks?, CIO.com, April 1 2009. CASE STUDY QUESTIONS
4 What concepts in the chapter are illustrated in this case?
Describe the weaknesses of Face book's privacy policies and features. What
management, organization, and technology factors have contributed to those
List and describe some of the options that Face book managers have in
balancing privacy and profitability. How can Facebook better safeguard user
privacy? What would be the impact on its profitability and business model?
Do you anticipate that Facebook will be successful in developing a business
model that monetizes their site traffic? Why or why not? MIS IN ACTION
3. To what user information does Facebook retain the rights?
What is Facebook?s stance regarding information shared via third-party
applications developed for the Facebook platform?
change, if anything?
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