Strategy & Competition December 17, 2009, 5:00PM EST

Facebook's Online Identity War

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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."

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To Catch a Twitterer

Can 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/

Douglas MacMillan is a staff writer for BusinessWeek in New York.