Facebook privacy - a great leap backwards, a smaller step forward

Last night (UK time) Facebook announced its new privacy settings. Much has been written about it - tactically, operationally, and practically.

In summary, Facebook has given the absolute minumum ground it needed to in order to get major policywatch bodies off its back in the short term, and only yielded after extreme pressure, and still has the system sharing lots of user data as the default option. And this is just one battle, not the end of the war (to use the Harvard Business Review analogy) and Facebook has not been routed, but has retired from the field in good order - for now.

What I want to do in this post is explain is why this will not be the last run-in that users will have with Facebook about privacy. To do so its useful to understand these two statements by Mark Zuckerberg in his announcement last night. First, on their blog:

I am pleased to say that with these changes the overhaul of Facebook's privacy model is complete. If you find these changes helpful, then we plan to keep this privacy framework for a long time. That means you won't need to worry about changes. (Believe me, we're probably happier about this than you are.)

And, in the press conference he said:

"It's not about the money. It might seem weird, we're not doing this to make more money. For all the people inside the company that could not be more true. It's such a big disconnect that we're doing this for the money."

This is what makes me sceptical about the Facebook Official Future, because he is being knowingly disingenuous in my view - and that tells us a lot to start with. It is about the money - Facebook needs to generate real revenues, sufficient to justify not just the existing $15bn valuation but also the monster IPO that its backers are looking for.

And thus Facebook has two totally competing objectives - the system dynamic diagram at the top explains this. What they have done today by rescinding some of their "un"privacy moves is try to create a more virtuous circle on the user side - increasing privacy increases trust, so users generate more data. This replaces the Vicious Cycle I wrote about yesterday, wherein reducing privacy reduces the amount of useful data that users will share.

The problem now is, after these changes Facebook makes less money than it did yesterday, and is less able to mine its user data and pass that on.

And as the diagram above shows, Facebook is actually operating in a 2 sided market in which one side - the Users - consume the service but pay nothing. It's real stakeholders - its backers - are Funders and Advertisers, and they want Facebook to make money (the former party) and get good user data (the latter party).

Even more worryingly, in both the vicious and virtuous cycles, Facebook potentially makes less money. The difference is timing. Facebook makes less money almost immediately it institutes increased privacy. However, if it removes privacy it makes a lot more money until the users catch on and the next furore starts and they then retreat from that position.

So the obvious thing to do is advance in miles and retreat in yards, as late as possible.

So the one thing we can predict with certainty is that the changes to Facebook's privacy model are not complete - because its about the money. Which is why we predict we will see - again and again - Facebook will make great strides in privacy removal, wait as long as it can, try and contain the fallout, and then try and retreat as little as possible. But we do suspect they will change their modus operandi - there were too many people coming out the woodwork to check on them this time, so we predict from now on in it will be a far more stealthy erosion.