Privacy & Profits

11

Reconciling the Competing Stakeholder

Interests of Facebook

Prepared for the Executive Directors of Facebook

Consultants: Mai Hoang, Paul Johnson, Dan McCarty, Laura Molinari, Lily Tang

Coordinator: Brett Klein

Privacy & Profits

22

Overview

The Crisis: • Tremendous pressure to generate

revenue• Violations of Privacy

Dilemmas:• Ethical• Legal• Financial

Solution: “reviewbook”TM

• Respects user privacy• Better targeted ads

3

Negative Press

4

Pressure to generate revenue

$150 M $300 M

Facebook’s Revenue

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Violations of Privacy

Beacon•Why it was made•What it did•What happened

Flawed Privacy Practices•Wild-Wild-West Methodology

6

Ethical Dilemmas

Invading PrivacyViolating the Duty of Care• Informed Consent

77

Ethical Dilemmas: Invading Privacy

3rd Party information exchangeHighly deceptiveBeacon stores all information exchanges even if the user does not wish to publish informationBeacon launch was unannounced to users

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Ethical Dilemmas: Invading Privacy

Facebook announces that it will open profiles to search engines in October(encourages users to adjust their privacy settings)

New Ad platform launches(including Facebook beacon)

Traffic to Facebook’s “Privacy” Settings Page

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Ethical Dilemmas: Violating the Duty of Care

Digital Immigrants

• Not born during the digital age (over the age of 28)

• Often have poor understanding of the Internet and its capabilities

May 2007 User Distribution

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Ethical Dilemmas: Violating the Duty of Care

Chose investors over other stakeholdersDid not care for its users in the most fundamental ways• Contributing to society and human well being• Be honest and trustworthy• Respect the privacy of others• Honor confidentiality

11

Legal Dilemmas

Potential legal liability

Interpretation of the Law

Law cannot keep up with technology

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Legal Dilemmas:Potential Legal Liability

No current legal cases against FacebookLegal reviews of Facebook• MoveOn.org• EPIC.org• Center for Digital Democracy

13

Legal Dilemmas: Interpretation of the Law

New York Law of Torts:§ 652C Appropriation of Name or Likeness

New York’s well-known statute creates both a misdemeanor and a civil cause of action for “[a]ny person whose name, portrait, picture, or voice is used within this state for advertising purposes or for the purposes of trade without the written consent first obtained.”

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Legal Dilemmas: Interpretation of the Law

California Online Privacy Protection Act of 2003

• Requires commercial websites to post a privacy policy• Policy must state a list of the categories of third-parties

with whom the operator may share such personally identifiable information

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Legal Dilemmas: Law cannot keep up with Technology

Law should not solely guide business practices

Facebook should set a precedent for other social networking sites

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Financial Dilemmas

Jeopardizing user growthLoss of potential revenue P

RIVACY

USERS

17

Financial Dilemmas: Jeopardizing User Growth

Average Daily Visitors Worldwide

1818

Financial Dilemmas: Loss of Potential Revenue

1919

Solutions:Recent action steps

New privacy controlsAnnounced privacy policy on home pageChanged Beacon to opt-inPublic statements

20

HCP Consulting Solution

reviewbookTM:•Facebook formatted application •User-generated review system•Increased revenue•No 3rd party information exchange

21

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Projected Revenue

Premium:• $4,500 per campaign x 2,000 campaigns =

$9,000,000

reviewbook:• Large box: $.004 x 5% users x 30 pages =

$414,000• Small box: $.003 x 5% users x 30 pages =

$310,500

Banner ads:• 25.2 M users per day x 5 pages = 126 M• 126 M x $.004 x 30 days = $15,120,000

Click-throughs:• 126 M x 2% x $.05 x 30 days = $3,780,000

Total monthly revenue $28,624,500

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Solution: reviewbookTM

Ethical: User-generated information

Legal: No 3rd party exchange of information

Financial: More effective targeted ads

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Getting back to your roots

Putting power back in user handsFacebook is a tool with great avenues of making moneyMission driven• Connecting people to

people• Privacy• Profits

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Questions/Comments

©2008