Facebook is not too big to fail

by on May 26, 2010 · 3 comments

Many of my free market friends have been making the case that government action is unnecessary to address the privacy trouble in which Facebook has recently found itself. I agree with them completely. The reason is that I believe that the given choice, individuals acting in the market will act to discipline unscrupulous or stupid companies. This is precisely what we’ve begun to see happen to Facebook.

It therefore bothers me when folks go beyond mere defense of free market to pretending that corporations can do no wrong. Facebook, for example, has committed a terrible breach of trust against its users, and it should pay the price. Still, on the NetChoice blog, Steve DelBianco writes this about Facebook’s new privacy options:

Facebook is making these moves partly to placate a handful of professional privacy critics, as we described on our post this week.  But as with most moves made in reaction to critics, there’s a chance Facebook might have moved too far.

As part of this change, Facebook is making it trivial for users to stop applications and websites from knowing anything about you.  If lots of users select this option, I’m afraid it could restrict Facebook’s use of targeted advertising (those ads on the right side of your Facebook pages) and their new instant personalization program.  Here’s why we should all be concerned if everyone opts-out of sharing anything:

First, we’ll still see ads, only they won’t be so relevant[.] … Second, and far more concerning, is the effect on Facebook’s ad revenue[.]

I’m not a “professional privacy critic,” yet I know I’ll never trust Facebook with any of my data ever again. I hear the same sentiment from many of my friends, acquaintances, and other regular folks I follow online. Sometimes, companies react because they made a dumb mistake (or perhaps in this case a repeated one that makes one wonder whether it’s a mistake at all), not only in response to privacy advocates. I know Steve’s saying Facebook’s only partly reacting to critics, but I believe that any such fraction is very small.

Next, yes, people might choose to restrict access to their data so much that it might diminish the relevance of ads served to them and threaten Facebook’s revenue stream. To the first matter, the whole point of a market is that consumers get to have choice. More privacy traded for less relevant ads is a choice I’m happy to see individual users make if they think that’s what’s best for them. I think users are smart enough to make those choices, and we see that they’re happy to make a trade of less privacy for more relevant ads when they trust a company. I don’t see Google facing the same kind of user backlash Facebook perennially faces.

To the second point, Facebook is not entitled to any revenue whatsoever. Might a user revolt kill their service and squelch their ability to innovate? Yes, but as long as this fate is the result of the choices of individuals made in a free market, that’s perfectly fine. In fact, it’s what markets are for. If Facebook can’t make money, then what does this tell you about how much users value the service?

I for one find little useful or desirable about Facebook’s “instant personalization” or “social plugin” technologies. To my mind they are vastly inferior to open web standards. If they go the way of the Dodo, I wouldn’t think it a tragedy. And as long as regulation is kept at bay, innovation won’t suffer because users will take their eyeballs and their trust to other services. We don’t need Facebook to keep innovating.

  • bradencox

    Hi Jerry, you’re absolutely right! It should be the market, not regulators, that punish (or reward) Facebook. Unfortunately that’s not the view of the “professional privacy critics” referenced by Steve. In today’s regulatory climate, a business failure equals a market failure, bringing calls for government regulation.

    There are times when an issue rises to such a level that one company becomes the symbol, the torchbearer, for that issue. As pro-regulatory forces converge around that company and use it as not just one example, but THE example, for why government regulation is needed – well, that puts pro-market advocates at a disadvantage. Speak up for the company and risk being called a “shill” – or defend market forces and appear insensitive to the current situation.

    Facebook is such a torchbearer (or piñata?) for privacy. But there’s also another approach – admit a company did something wrong but still defend either the market when consumers react or the company when it takes corrective action. You take the first approach; Steve’s approach is the later. Neither should be confused with defending a company out of blind adherence to free market ideology.

    I do think Facebook’s social plugin and instant personalization features are (or at least have the potential to be) innovative, but consumers will ultimately decide that one – unless there’s a privacy law that prevents them (and other online innovators) from going forward.

  • http://www.machwan.in/ Database Management

    You are very right that Facebook is not too big to fail. It's a market trend that if your are very successful then there are some disadvantages also. Facebook is also facing such a problem with the privacy settings. I think it will resolve soon.

  • http://www.machwan.in/ Lead Generation

    You are very right that Facebook is not too big to fail. It's a market trend that if your are very successful then there are some disadvantages also. Facebook is also facing such a problem with the privacy settings. I think it will resolve soon.

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