Facebook: Risk & Riches

Excerpt from an article in

The New York Times

Monday, February 27, 2012

For Facebook, Risk and Riches in User Data

By SOMINI SENGUPTA

SAN FRANCISCO — It is Facebook’s biggest conundrum. As the world’s largest social network, it faces intense scrutiny from consumers, courts and regulators worldwide over how it handles the data it collects from its 845 million users. But as a company preparing to go public, it is under pressure to find new ways to turn that data into profit.

The scrutiny is at its most intense in Europe. Regulators in Ireland, where Facebook has its European headquarters, have already demanded that it give users greater control over their information. A proposed Europe-wide law goes much further by requiring Facebook, along with every other online business, to expunge every bit of personal data at a consumer’s request.

In the United States, Facebook faces government audits for the next 20 years about how it collects and shares data, along with an assortment of lawsuits that accuse the company of tracking users across the Web. Even the White House stepped into the fray last week, demanding that Web companies give users more say in how their personal data is used.

Facebook is not the only company dealing with these issues, but it is especially vulnerable because its very business model relies on the fire hose of information that its users willingly share. “We are in very turbulent and unpredictable times when it comes to privacy regulations,” said J. Trevor Hughes, a lawyer who leads the International Association of Privacy Professionals. “We see regulators with a sense that something needs to be managed better, but without the tools.”

The result is a cloud of uncertainty for Facebook, which is expected to go public this spring. Among the risk factors listed in Facebook’s filing for a public offering is the prospect of “adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including settlements or consent decrees.”