Facebook's Privacy Puzzle

In his book The Facebook Effect: The Inside Story of the Company That Is Connecting the World, David Kirkpatrick describes how when Mark Zuckerberg was beginning to build his social-networking business, he would sit around on weekends and read the works of Peter Drucker. Now, it seems, would be a pretty good time for Zuckerberg to make sure he and his entire team brush up on Drucker's teachings about the customer.

In particular, the folks at Facebook would do well to consider Drucker's notions about how to juggle the needs of primary customers (in Facebook's case, its 500 million users, who have certain expectations when it comes to privacy) and supporting customers (the company's advertisers, who are eager to access and exploit as much customer data as possible).

"The primary customer is never the only customer, and to satisfy one customer without satisfying others means there is no performance," Drucker asserted. "This makes it very tempting to say there is more than one primary customer, but effective organizations resist this temptation and keep to a focus—the primary customer."

Creating a Community

On a basic level, Facebook has clearly figured out how to give its primary customers what they're looking for: a way to share messages, photos, videos, and other information with groups of friends. Indeed, that one out of every 13 people on the planet is on Facebook attests to the staggering power of the product.

It is an innovation that Drucker, even though he was computer shy, would have greatly appreciated. "People do need a community," Drucker wrote in his 1993 book Post-Capitalist Society. "They need it particularly in the sprawling huge cities and suburbs in which more and more of us live. One can no longer count … on neighbors who share the same interests, the same occupations, the same ignorance, and who live together in the same world. Even if the bond is close, one cannot count on family."

At the same time, Facebook also seems to be satisfying its other customers—the marketers hoping to target ads to those online. In an interview last week with Bloomberg, Facebook chief operating officer Sheryl Sandberg crowed that some of the Palo Alto (Calif.) company's biggest advertisers have upped their spending at least 10-fold in the past year.

A Clash With Advertisers

But increasingly, the needs of these two camps—users (who participate on Facebook for free) and advertisers (who pay the bills)—appear to be coming into conflict. Striking the proper balance can be tricky for all sorts of enterprises. A hospital, for instance, must decide "whether the patient or the physician is the primary customer," Drucker noted. And nonprofit organizations routinely run into a thicket of competing "customer" interests: those of funders, volunteers, and the people they serve.

At Facebook, tensions have been mounting steadily. In May, The Wall Street Journal reported that once someone clicked on an ad, data were being shared with the advertiser that could potentially reveal the user's name, age, hometown, and occupation, depending on how much public information the person had disclosed on his or her profile. After the story broke, Facebook said it was fixing the situation, while maintaining that its policy is never to share user information without the person's consent.

More generally, though, privacy advocates see a troubling pattern in Facebook's behavior. Kurt Opsahl, a senior staff attorney with the Electronic Frontier Foundation, has traced Facebook's privacy policy since the site's early days in 2005. And his analysis shows, without question, that Facebook has been transformed from a relatively safe space for communicating "with a group of your choice" to a platform where it has gotten harder and harder not to put pieces of your life on display. Along the way, Opsahl says, the company has "slowly but surely helped itself—and its advertising and business partners—to more and more of its users' information."

"The Stupidest Thing We Could Do"

Zuckerberg insists there is a line he won't cross. "We don't sell any information" to advertisers "and we never will," he told an interviewer earlier this year. In another forum, Zuckerberg declared that selling user data to advertisers is "the stupidest thing we could do. … People are only going to stay on there as long as they trust us."

Yet Zuckerberg has also suggested that people are growing more and more comfortable with being transparent and, in turn, having their online experience used for "personalized" marketing. Perhaps he is on to something, and if he has gleaned this insight by honestly probing and understanding what his primary customer values, then Facebook should by all means continue pushing in that direction.

"The question, What do customers value?—what satisfies their needs, wants, and aspirations—is so complicated that it can only be answered by customers themselves," Drucker wrote. "Leadership should not even try to guess at the answers but should always go to the customers in a sympathetic quest for those answers."

But there are reasons to be skeptical. The 2010 American Customer Satisfaction Index gave Facebook very low marks, in part because "privacy concerns … and commercialization and advertising adversely affect the consumer experience." Even young adults—the supposed exhibitionists of the Web—are "far from being nonchalant and unconcerned about privacy matters," according to a recent study by two researchers at Harvard's Berkman Center for Internet & Society.

The real impetus to make Facebook more of a glass house, I suspect, comes from Zuckerberg's supporting customers, who are tempting him to betray his primary customers. And that's something Drucker wouldn't have "Liked" one bit.