Strategy & Competition

Facebook's Online Identity War


On the walls of Facebook's Palo Alto (Calif.) headquarters hang multiple prints of René Magritte's painting The Son of Man. The company's execs see the image of a man's face obscured by a green apple as a metaphor for the millions who surf the Web anonymously. "Part of what Facebook is trying to do is help people take the apple away," says Chris Cox, the company's vice-president for product.

Facebook has good reasons to push people to be up front about who they are online. As the world's largest social networking site, it stands to reap a fortune if it can help customize advertising and product pitches to the characteristics of each user. But many people are reluctant to share personal information on the Web. They're particularly concerned about entrusting their identities to companies such as Facebook, which seeks to profit from the information it collects. "Fundamentally, Facebook is a business," says Kaliya Hamlin, co-founder of the Internet Identity Workshop advocacy group. "Their business is about monetizing the people in their network."

Almost any online activity leaves traces of your identity, from a Google (GOOG) search (what you're looking for) to an Amazon.com (AMZN) visit (what you're buying). Yet there's no widely accepted identity standard online—the equivalent of a driver's license or Social Security number. Facebook wants to change that by creating a digital calling card that could be used to identify people pretty much wherever they go on the Web. To help in the effort, in August Facebook hired one of the pioneers of online identification. David Recordon co-founded OpenID Foundation, a nonprofit group that maintains a set of open standards for Web identity. He plans to apply the foundation's principles of openness and transparency to Facebook. Already, the social network lets new users register with their name and password from Google's Gmail service, and Recordon says similar arrangements with other companies are in the works. "Standards are the plumbing layer of the Internet," says the 23-year-old. "For them to be successful they have to be freely shared."

Facebook argues that most services on the Web become more useful when they know something about users. One early example is Facebook Connect, a program that lets users log into their profile and interact with Facebook friends on more than 80,000 Web sites. When people sign in to YouTube (GOOG) with Facebook Connect, the video site highlights clips their friends enjoyed. For President Barack Obama's inauguration, CNN let online viewers use Facebook Connect to chat with others watching the ceremony. Almost 60 million of the social network's 350 million users have signed up for Facebook Connect in the year since it was introduced.

Facebook Connect is also integrated into Web-connected devices, including Apple's (AAPL) iPhone and Microsoft's (MSFT) Xbox gaming console. The technology lets friends play games and catch up with each other while they're away from the PC. Facebook expects that as a greater variety of devices connect to the Net, users will see even more benefit. For example, you may soon be able to get in your car and tell the GPS to direct you to a person, rather than an address. "That kind of disruptive change can apply to a lot of different industries," says Bret Taylor, who works on Facebook Connect.

Such changes may also help companies profit from Facebook's data. On Dec. 2, Yahoo! (YHOO) announced a partnership with Facebook that will let users of the social network identify themselves on Yahoo sites and share articles, photos, and other content with friends. In part of the agreement that was not announced, Yahoo intends to tap Facebook user data to place display ads targeted to individuals on its own pages, according to a source familiar with the plan. In theory, this means advertisers will be able to pay Yahoo to get ads in front of a specific demographic group, such as women from California, if the users have shared their Facebook credentials with the site.

Those are the kinds of deals that make privacy advocates and individuals skittish. Facebook is already a big business, with estimated revenues of $500 million in 2009, and financial pressures are likely to grow as it considers an initial public offering. Facebook sparked an uproar this month when it made a series of changes to its privacy settings, including revoking the ability of users to hide their name, gender, profile picture, and hometown from anyone who views their profile. It also gave Facebook Connect partners access to the same information. The changes "reduced flexibility and control for users over their privacy in a myriad of ways," says Kevin Bankston, an attorney for the nonprofit Electronic Frontier Foundation.

Recordon's old friends at OpenID are raising warning flags, too. Chris Messina, a board member at the nonprofit, concedes his group's technology isn't as easy to use as Facebook's, but says Web sites should continue to support OpenID since Facebook may prioritize profits over privacy. "It's just too soon to let Facebook determine the future of identity on the Web," he says.

Facebook says it doesn't want to monopolize the development of identity technology. And Recordon claims that competition from companies such as Google will help push everyone to come up with ways to protect privacy while also helping people reap the benefits of sharing their identity. It's still so early, he says, "innovation is important."

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkTo Catch a TwittererCan one go incognito in the Digital Age? Wired's Evan Ratliff took a fake identity and went missing in August. A $5,000 reward lured a group of amateur gumshoes to find him using traces he left on Facebook, Twitter, and other sites. An entrepreneur in Seattle nabbed him in less than a month. Ratliff writes about it in the December Wired.To view the story: http://bx.businessweek.com/data-protection-and-privacy/reference/
MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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