How would you like it if all your friends knew you bought a manual on battling sexual dysfunction off eBay Inc.? That’s the kind of conundrum that’s got Facebook in hot water. The social networking site’s invasive new advertising platform, Beacon, has prompted a user backlash so severe it has sent advertisers running.
The controversy comes as Facebook is struggling to justify the huge valuation a handful of new investors have placed on the firm. Hong Kong tycoon Li Ka-shing just snapped up a $60 million (Rs236.4 crore) stake, joining Microsoft Corp. in valuing Facebook at $15 billion.
Facebook’s financial success is wholly predicated on user loyalty. By creepily compromising the privacy of its users, which is an infraction, Facebook now stands accused by many of its adherents and that has put its business model at grave risk.
Beacon collects data about Facebook users’ purchases and product reviews on third-party sites, such as Blockbuster Inc. and eBay Inc. Facebook then makes that information visible across its social network. Users recoiled when Beacon was introduced, prompting Facebook to give users a choice about whether they wanted to participate.
Yet, Facebook still receives all such information, even from users who have opted out. That has raised privacy concerns severe enough to prompt partners such as Travelocity, online travel portal of Travelocity.com LP and retailer Overstock to withdraw their support. If Facebook wants to justify its lofty valuation, it will have to do two things. First, it must figure out how to extract advertising revenues from its stable of users. It’s too early to say if Beacon generates much in the way of sales. But it isn’t a good sign that even advertising clients fear the system is too intrusive. Second, Facebook will only justify its valuation it keeps rapidly adding new users.
A Li Ka-shing-aided expansion into China would surely be valuable. But any gesture that alienates clients could slow growth. If Silicon Valley’s hot plaything wants to remain an Internet darling, it needs to make privacy a bigger priority.