By Jessi Hempel
May 17, 2010

Some tech pundits think Facebook is in trouble, but the data tells a different story: growth hasn’t slowed a bit.

You’d be forgiven for thinking that Facebook has a backlash on its hands. Many news outlets are reporting it, after all. Tech pundit Leo Laporte and Engadget co-founder Peter Rojas killed their profiles. U.S. Senators have sent the company a letter and so have a group of European Union data advisors. And in a flashy poker metaphor, blogger Jason Calcanis accused founder Mark Zuckerberg of overplaying his hand.

The data tell a different story: Facebook has had a net gain of 10 million active users since it announced a series of new features at f8, the company’s April 21st developer conference. A few high profile tech bloggers may have quit the site, but not many other people have. The number of deactivations, according to a Facebook spokesperson, is about the same as it’s been all along.

What’s more, web publishers are fast adopting the “like” button and other social plug-ins. Having launched with 75 partners, Facebook now counts more than 100,000 of them.

Nonetheless, Facebook’s small-but-vocal privacy police say the site can’t be trusted to protect its users. They’re concerned that Facebook has made some information including profile interests public by default, changing things up on a cohort of people who believed all parts of their profile could be restricted. And they complain that the 45,000-word privacy policy is too complicated for the ordinary user to decode. BuzzMachine’s Jeff Jarvis calls it a Talmudic tangle, saying Facebook should “find the Apple-elegant way to express [it].”

What we talk about when we talk about privacy

These concerns are valid, but they must be understood in the context of the changing nature of behavior on the web. When we discuss privacy, what we’re really talking about is control over our personal data. This becomes increasingly important as new technology enables us to share more and more of it. We want to be able to restrict certain types of information to certain people. Only my friends should see the pictures of my family, for example, but I’d like my work colleagues and Fortune’s readers to see the link to my  recent cover story on LinkedIn.

Once given this type of control, most people actually don’t value privacy that much. Altimeter Group founder Charlene Li put it this way: “What’s the cost of privacy? Free shipping.” By that she meant that we give away our personal data in return for things we value all the time and we are often not even aware of it. For example, when you answer a few questions about yourself in return for shipping on an e-commerce site, how much thought do you give to how that information will be used? This has been happening since long before the Internet, but it has never been as transparent. How often do you stop to think about whether the junk mail that clogs your mailbox arrives because your mortgage broker sold your personal data when you last applied for a loan?

Specifically, in debuting instant personalization at f8, Facebook introduced a new way to behave on the web: should the feature be successful, other sites you visit will have a deep level of information about you when you arrive. Because instant personalization was such a new idea, Facebook launched with just a few partners. One was music streaming site Pandora. After I clicked on the drop-down bar on to accept the Facebook integration, the site began showing me the musicians my Facebook friends are listening to.

My first reaction? Creepy! My second reaction: Cool!

That’s pretty typical for most new communication tools. When I was in high school and my family first got caller ID, it felt like a huge invasion of privacy. Now I don’t pick up the phone unless I recognize who is calling.

This is not the first time Facebook has endeavored to give users a new way to do things online. When Zuckerberg introduced the news feed in September 2006, a small-but-vocal group of people freaked out. Zuckerberg responded with an open letter to users that began, “We really messed this one up.” It was a huge risk to the company, but over time users embraced the feature. Now the idea of aggregating social behaviors in a stream like the news feed has become the new way in which social information is organized and digested.

It’s representative of Facebook’s approach to introducing most new features: let it loose, listen to users, and dial it back while they get used to it. Better to apologize later than to ask permission beforehand. For innovators, this can be a smart strategy. It was Henry Ford who said that if he’d asked his customers what they wanted, they would have said a faster horse.

The company understands the gravity of the behavioral shifts that are happening atop its platform as it user base mushrooms to more than 400 million members. Facebook has had an office in Washington D.C. for nearly a year, and in the past six months it has staffed up and become more proactive in discussing how information is shared on the web. (It has not brought former FTC chairman Tim Muris on staff, as some outlets reported earlier in the week, however.) Company executives are blogging regularly about the decisions they’re making. And engineers tweak the designs and features constantly to better reflect user and advertisers needs.

Ultimately, Facebook’s success has more to do with how well it listens and responds to users, and not a lot to do with whether it lets them keep data private. If users embrace the changes, Facebook will flourish. If not, as with the failed advertising product Beacon, the company will need to adjust its strategy. So far, this is working. While tech pundits Laporte and Rojas may have killed their Facebook profiles, most people haven’t.

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