Facebook is trying to find friends in Washington—the old-fashioned way. The world's largest social networking site is expanding its six-person Washington office, spending more on lobbying, and meeting with lawmakers, congressional staff, and privacy experts who question whether the company is adequately protecting the personal information of its 500 million users. Founder Mark Zuckerberg is also on a charm offensive to show he's on the right side of the debate. "Privacy and making sure people have control over their information is, I think, one of the most fundamental things on the Internet," Zuckerberg said in a 60 Minutes interview on Dec. 5.
The prospect of new federal privacy regulations adds uncertainty to the outlook for Internet stars such as Facebook and Google (GOOG), which get much of their revenue from ads targeted at users. Congress, the Federal Trade Commission, and the Commerce Dept. are considering additional—and clearer—privacy safeguards on Internet companies that amass user data. The White House has a task force looking at concerns, and the FTC announced on Dec. 1 that it favored a "do not track" option for Internet users to block monitoring of their online movements. "Privacy could be the real Achilles' heel for this company," says Sunil Gupta, a business professor at Harvard Business School.
So far, privacy concerns haven't stopped Facebook's growth. Its 2010 revenue is expected to double, to $1.4 billion, according to two people familiar with Facebook's figures. The company channels communication among subscribers who approve access by people considered "friends" and helps advertisers target consumers based on user demographics and interests. The company says it gives users the ability to determine how much information they share and says it doesn't reveal the identities of individuals to third parties. In talks with policymakers, "it's about how users have control over information," says Marne Levine, a former top aide to Lawrence Summers, director of the White House National Economic Council, and who joined Facebook in June to head its Washington office.
Facebook may have less to worry about from a do-not-track option than other Internet companies because it doesn't follow people across the Web. In May, Facebook introduced simpler privacy settings and said it was reducing the amount of publicly available user information. In October it said some third-party software applications had transferred user ID numbers in violation of company policy. The company suspended some application developers and said it was taking steps to prevent user information from being passed to outsiders.
Even as lawmakers consider clamping down, many of them are Facebook users, including the co-chairmen of the Congressional Privacy Caucus, Representatives Joe Barton (R-Tex.) and Edward Markey (D-Mass.), who are leading the charge over alleged privacy lapses. Senate Commerce Committee Chairman Jay Rockefeller (D-W. Va.), who is not on Facebook, says he plans to draft Internet privacy legislation next year. This year almost every candidate for the House and Senate used Facebook to reach voters, says company spokesman Andrew Noyes.
Facebook executives have leased larger office space and are looking to hire a public policy expert and another press spokesman, which would increase the Washington team to eight from none three years ago. They say they are mindful of how Google, Microsoft (MSFT), and Apple (AAPL) got caught up in regulatory and legislative issues. "We have the benefit of having seen those companies and their experiences in Washington and learning from them," says Timothy D. Sparapani, a former privacy expert for the American Civil Liberties Union who became Facebook's first Washington lobbyist in 2009. Jeffrey Chester, executive director of the Center for Digital Democracy, a privacy advocacy group, is skeptical. "Facebook is a ticking privacy time bomb," he says, "no matter how much they spend on lobbying."
The bottom line: Facebook is expanding its lobbying team to deal with Washington's growing interest in privacy and other Internet issues.