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Facebook's 5 Step Plan to Ignore Privacy and Collect More Personal Data [Update]

Last December, Facebook announced it would use facial recognition software to suggest that users tag their friends in photos. According to security firm Sophos, the company recently began to enable this feature by default. And now Facebook "should have been more clear with people during the roll-out process when this became available to them." Or, rather, when they were saddled with it.

This most recent privacy eruption is yet another example of what has become Facebook's standard MO -- i.e., introduce more privacy-invasive features without warning in hopes that people will just accept them. But why does it keep doing this, given how badly Facebook users seem to react every time?

Short answer: Desperation. Dogged by a high company valuation, Facebook execs need to keep pushing for new ways to increase revenue and keep investors and the board of directors happy. Absent federal marshals showing up at the company's office with warrants, Facebook will do whatever it thinks that takes, even as it faces increasingly unhappy regulators. At least this way it will be around long enough to get a big IPO and pay off the early investors. After that, good luck to anyone still holding the bag.

Facebook's problem: it has to make a lot of money
To understand Facebook's actions, consider the Cliff Notes version of its financial history, strategy, and essential dilemma:

  • Facebook showed promise in social media and eventually eclipsed then-reigning champ, MySpace (NWS).
  • The promise resulted in a total of $2.34 billion in investments.
  • Charging users would cut massively cut down the number of customers, which is what makes the company competitively strong. Therefore, Facebook primarily relies on advertising for its revenue.
  • As my BNET colleague Jim Edwards notes, there are serious questions about the company's finances and, particularly, whether advertising on Facebook is effective.
  • Facebook has to make ads work to not only keep the money in, but radically increase revenue growth enough to warrant the business valuations it has seen.
  • If Facebook valuations aren't high enough, an IPO isn't going to make investors the giant pot of gold they've expected and bet on.
And if the investors don't make the money they want, they're going to put the screws to Facebook and CEO Mark Zuckerberg. It's totally understandable if the FB crew feels as though it has to make things happen.

Go away, kids, you're bothering us
Unfortunately for them, and for the public, the only option they've got at the moment is to make ads work better -- and that means exploiting as much personal user information as possible. The conflict comes when consumers and regulators object. However, Facebook has developed a PR strategy to counter the reaction:

  1. Introduce the features in advance, allowing people to express a first wave of outrage.
  2. Put features on hold for a few months, allowing people to cool down.
  3. Enable new features for all users by default.
  4. On the next wave of complaints, issue a statement that the company should have communicated the changes more effectively.
  5. When people do opt out, stop the obvious use of the feature but collect and use the data anyway.
  6. Ignore the issue from then on and trust to consumers to become numb and grudgingly accept the new order.
Steps 1 through 4 are obvious if you look at the implementation pattern of each new privacy-busting feature. The fifth step came to light recently when Facebook began to resurrect messages deleted months before. As for the last point, Zuckerberg himself admitted this part of the strategy.

Once the IPO's done, we're gone

Facebook management gambles that it can continue to push (or rip open) the envelope for long enough to keep hiking ad rates, build demand among advertisers, and strengthen revenues enough to make a high-value IPO seem reasonable. (That shouldn't be too hard if the recent LinkedIn (LNKD) IPO is any sign.)

Once the investors can cash out, they'll then leave Zuckerberg and company -- and everyone who bought a piece of the post-IPO pie -- to deal with the growing wave of regulatory concern and consumer anger. Hey, that's why they call it the greater fool theory. Ignoring problems can work in the short- or even medium-term. But it never corrects underlying failures that mount and eventually crack. And whoever is left has to clean up the mess.

[Update: The EU will probe Facebook over facial recognition.]


Image: Flickr user Anonymous9000, CC 2.0.