Technology May 13, 2010, 5:00PM EST

Facebook's Washington Problem

The social network is facing a privacy backlash that could prompt congressional hearings

By Douglas MacMillan

Browse Issues

Browse the BusinessWeek Archive

Story Tools

Facebook, the ever-expanding social networking site, delights millions of users with its innovative ways to stay in touch. At the same time, the six-year-old online phenomenon continually tests their tolerance for sacrificing privacy. Now it has provoked a new skirmish—this time with members of the U.S. Congress. On May 12 aides to Senator Charles Schumer (D—N.Y.) met in Washington with Elliot Schrage, Facebook's public relations and policy chief, to discuss concerns about the company's privacy policies. Schumer has had talks with colleagues about holding congressional hearings, according to a person familiar with the proceedings.

Senator Mark Begich (D—Alaska) says he's worried about new data-gathering capabilities Facebook has introduced and what he sees as the Web company's arrogance in brushing off questions about its practices. The site has launched a feature that builds restaurant guides and music playlists derived from personal information supplied by users and their Facebook friends. Begich, Schumer, and two colleagues—Al Franken (D—Minn.), and Michael Bennet (D—Colo.)—wrote a letter dated Apr. 27 to Facebook founder and Chief Executive Officer Mark Zuckerberg taking him to task over how this commercially valuable information is being shared with other Web sites and marketers, sometimes without users' consent. In early May, the Alaska lawmaker sent aides to meet with Facebook in D.C. So far, Begich says, nothing has changed. Facebook's inaction, he says, "tells me that we need to elevate this so they understand how important it is."

Since its start in 2004, Facebook has amassed one of the world's richest stores of facts and figures related to consumer behavior. The status updates, product-related musings, friendship connections, and entertainment preferences shared by more than 400 million people worldwide make the site attractive to marketers and Web publishers. Industry analysts say that the new data-gathering features Facebook has initiated could help bring the company more ad dollars. (Privately held Facebook does not disclose financial figures.) "People are now recognizing that Facebook has an economic incentive to encourage people to be more public" about their consumer preferences, says Danah Boyd, a researcher at Microsoft (MSFT), which has invested in the social network.

Zuckerberg, who turns 26 on May 14, promotes a more idealistic image for the organization he started as a Harvard undergraduate. "People have gotten comfortable not only sharing more information and different kinds but more openly and with more people," he said at an industry event in San Francisco in January.

What Zuckerberg considers encouraging openness can also be seen as asking users to reveal too much. Over the years, this dual nature of Facebook has sparked controversies, such as the one now smoldering on Capitol Hill. In 2007, the company launched Beacon, a program that broadcast user activity within the network and tracked what Facebookers did elsewhere on the Web. Beacon did all of this without asking users' permission. Facebook patrons protested and Zuckerberg publicly apologized. In September 2009 the company shut Beacon down. "We learned from Beacon that there's always a challenge of innovating faster than your users understand or accept," says Facebook's Schrage.

The latest Facebook features are reminiscent of Beacon. In addition to the playlist-and-restaurant-guide technology, Facebook now lets ESPN, Levis, or anyone else install a "like" button on their Web site. Facebook users who visit one of these properties and click "like" may unknowingly identify themselves as fans of a certain brand, letting that company access their personal information. In theory, the sites could then sell that data to advertisers targeting Facebook users. Schrage says no partner currently does so.

If users don't want their information to be shared, they have to sift through their Facebook account settings and click a series of boxes. "Every one of these incidents begins with Facebook sliding the privacy settings" to make disclosure of information easier, says Eben Moglen, a law professor at Columbia.

In their Apr. 27 letter, the four senators urged Zuckerberg to reverse some of the most recent changes to Facebook. "Users should have to choose to share their information, not the other way around," they wrote. The following week, 15 consumer groups filed a complaint with the Federal Trade Commission. On May 12, officials from 30 European countries wrote a letter to Facebook saying it was "unacceptable" for the company to have "fundamentally changed" the site's default settings.

Facebook's Schrage says the most recent changes are all entirely proper. He attributes the backlash to a public relations failure: "We need to do a better job of communicating to all of our users—whether they are senators in Washington or regular people."

The bottom line: Facebook has a history of pushing the limits on privacy—and backpedaling from the backlash. Expect the same this time.

Douglas MacMillan is a staff writer for Bloomberg Businessweek in New York.