Case Teaching Note

Facebook’s Beacon: Marketer’s Treasure Trove of User’s Nightmare?

CASE SUMMARY

Social networking Web sites like Facebook and MySpace provide “access to the personal lives and tastes of the people in your circle, or at least as much as they’re willing to share.” 1 Introduced in February 2004 as a social networking site for Harvard University students, Facebook grew enormously expanding to other college campuses and beyond. As of March 2008, over half of Facebook users are no longer attending college, and people 25 years of age and older represent the fastest growing membership segment.2

Developing applications and providing storage space for members’ information on a social networking site costs a lot of money. If a site like “Facebook can’t take in money from its users, it has to squeeze money from advertisers. And guess what? Advertisers expect bang for their bucks.”3 In early November 2007, Facebook launched an advertising scheme called Beacon that “tracks members’ purchases and activities anywhere on the Web”4 and allows them to be broadcast to the users’ friends.5

Chamath Palihapitiya, Facebook’s VP of product marketing and operations, says, “All we’re trying to do is make sure anytime there is a trusted word-of-mouth referral that your friend has made about this product, we share that information with you.”6 Mark Zuckerberg, Facebook’s founder and CEO, said Beacon “was intended to give advertisers a way into the conversations between people,”7 but critics say that Beacon basically paved “the way for marketers to snoop directly into users’ personal pages.”8

“[T]here isn’t an advertiser in America that isn’t drooling over the prospect of getting access to the wealth of highly personal detail in an application like Facebook.”9 Being able to pinpoint precisely the likes and dislikes of millions and millions of people is a marketers’ dream come true.10

Almost immediately, Facebook subscribers began complaining about invasions of privacy. Users complained that Facebook “was exploiting for commercial purposes personal information members hadn’t intended to share.”11 Vauhini Vara, a reporter for The Wall Street Journal, says he conducted a highly unscientific poll of readers where he asked: “If Facebook could tell your friends what you do on other sites buying movie tickets, clothes, etc. when would you want to share that information?” Of 200 people who responded, “1.5% chose always, 30.5% chose often, sometimes or rarely and 68% chose never.”12 In the January 2008 issue of Customer Relationship Management a ChoiceStream Personalization Survey reported that “although 66.6 percent of consumers expressed concerns about their privacy, 76 percent wanted some form of personalized content and 34 percent were willing to let sites track their behavior.”13 Under increasing user and public pressure, Facebook addressed the privacy problems with Beacon in short order.14 “Facebook users can now adjust their privacy settings to opt out of the Beacon program entirely.”15

“Advertisers typically pay a premium for targeted ads that reach users who are likely to be most interested in their product or service.”16 That is the fundamental marketing appeal of Beacon, and “a key to Facebook’s effort to increase its advertising revenue, pegged at slightly more than $150 million in 2007.17 “As Facebook continues its attempts to take targeted and vital marketing to the next level,

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marketing may get more invasive, signaling the imminent need to confront security issues across the entire Web.”18 “Activists’ calls to regulate interactive advertising which include the banning of behaviorally-targeted ads would, if followed, shut down this flow of advertiser money and the services for which it pays by limiting the medium’s effectiveness.”19 Randall Rothenberg, a reporter for The Wall Street Journal, points out “Internet consumers have shown themselves willing and able to police the medium on their own. Just ask Facebook: Consumer regulation proved itself to be a far more effective, efficient, economically productive and unforgiving mechanism than federal regulation ever will be.”20

1 Hamilton, A. (2007) Is Facebook overrated?, Time (December 3), 170(23), p. 23. Available online in ABI/INFORM Research database. Accessed April 5, 2008.2 Krivak, T. (2008) Facebook 101: ten things you need to know about Facebook, Information Today, 25(3), p. 44.3 Musthaler, L. (2008) Facebook fiasco highlights privacy concerns, Network World (January 7), 25(1), p. 30.4 Tsai, J. (2008) Facebook’s about-face: the social networking company introduced a marketing plan many of its members hated and changed course accordingly, Customer Relationship Management, 12(1), p. 17.5 Vara, V. (2007) Facebook rethinks tracking; site apologizes, makes it easier to retain privacy, The Wall Street Journal, Eastern edition (December 7), p. B4. Available online in ABI/INFORM Research database. Accessed April 5, 2008.6 Klaassen, A. (2007) Egg on their Facebook: users force reversal of ad approach, Advertising Age, Midwest region edition (December 3) , 78(48), pp. 1-2. Available online in ABI/INFORM Research database. Accessed April 5, 2008.7 Vara, V. (2007) Facebook rethinks tracking; site apologizes, makes it easier to retain privacy, The Wall Street Journal, Eastern edition (December 7), p. B4. Available online in ABI/INFORM Research database. Accessed April 5, 2008.8 Tsai, J. (2008) Facebook’s about-face: the social networking company introduced a marketing plan many of its members hated and changed course accordingly, Customer Relationship Management, 12(1), p. 17.9 Musthaler, L. (2008) Facebook fiasco highlights privacy concerns, Network World (January 7), 25(1), p. 30.10 Musthaler, L. (2008) Facebook fiasco highlights privacy concerns, Network World (January 7), 25(1), p. 30.11 Rothenberg, R. (2007) Facebook’s flop, The Wall Street Journal, Eastern edition (December 14), p. A21. Available online in ABI/INFORM Research database. Accessed April 5, 2008.12 Vara, V. (2007) Just how much do want to share on social networks?, The Wall Street Journal, Eastern edition (November 28), p. B1. Available online in ABI/INFORM Research database. Accessed April 5, 2008.13 Tsai, J. (2008) Facebook’s about-face: the social networking company introduced a marketing plan many of its members hated and changed course accordingly, Customer Relationship Management, 12(1), p. 18.14 Hamilton, A. (2007) Is Facebook overrated?, Time (December 3), 170(23), p. 23. Available online in ABI/INFORM Research database. Accessed April 5, 2008.15 Vara, V. (2007) Facebook rethinks tracking; site apologizes, makes it easier to retain privacy, The Wall Street Journal, Eastern edition (December 7), p. B4. Available online in ABI/INFORM Research database. Accessed April 5, 2008.16 Vara, V. (2007) Facebook rethinks tracking; site apologizes, makes it easier to retain privacy, The Wall Street Journal, Eastern edition (December 7), p. B4. Available online in ABI/INFORM Research database. Accessed April 5, 2008.17 Vara, V. (2007) Facebook rethinks tracking; site apologizes, makes it easier to retain privacy, The Wall Street Journal, Eastern edition (December 7), p. B4. Available online in ABI/INFORM Research database. Accessed April 5, 2008.18 Tsai, J. (2008) Facebook’s about-face: the social networking company introduced a marketing plan many of its members hated and changed course accordingly, Customer Relationship Management, 12(1), p. 18.19 Rothenberg, R. (2007) Facebook’s flop, The Wall Street Journal, Eastern edition (December 14), p. A21. Available online in ABI/INFORM Research database. Accessed April 5, 2008.20 Rothenberg, R. (2007) Facebook’s flop, The Wall Street Journal, Eastern edition (December 14), p. A21. Available online in ABI/INFORM Research database. Accessed April 5, 2008.

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QUESTIONS FOR DISCUSSION

1. Why do social networking Web sites appeal to so many people? What are people gaining and sacrificing by using social networking Web sites?

2. What ethical issues does Beacon raise for Facebook and its various stakeholders?

3. Do you support Mark Zuckerberg’s position that Beacon is merely a natural technological extension of word-of-mouth referrals, or the Facebook critics’ position that Beacon is an unwarranted commercialized invasion of privacy? Explain your position.

4. In your view, how, if at all, can the battle between Facebook advertisers and Facebook users be resolved?

Authorship

This teaching note was written by Michael K. McCuddy, The Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University.

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