The fundamental problem with Facebook's business model

David Heath
Monday, 16 May 2011 09:40

Opinion and Analysis

Facebook's ongoing reluctance to tighten the privacy and security of its users reveals the fundamental problem with its business model.  In order to maintain business relationships with the 'corporates' (who pay the bills), the users must be delivered on a platter.

In the eyes of Facebook, a 'user' is simply the unit of currency used to trade with the companies who provide the income stream.  The more 'users' delivered to the client, the more Facebook received.  Not a single user contributes a single cent to Facebook's huge data centre start-up and running costs.

Of course this is a simplistic summary of the state of affairs, but it usefully serves to identify the major players and what their motivations are.

If I were so kind as to want to invest in Facebook as part of some commercial arrangement, I would clearly want something in return.  Just about the only thing Facebook has to give in return is access to its users.  And the more users are able to hide themselves and their 'attributes,' the less value they have in the transaction.

Let's counter this with an observation of the very separate discussion between Facebook and the users.  Quite successfully, Facebook has told everyone to detail their lives in amazing detail.  More, to link with the people close to themselves - whether these links are personal, professional or social connections. 

What is kept (somewhat) out of sight is that the most attractive part of this mesh of interactions is the mesh itself - generally referred to as a "social graph."  Just ask Google.

In order to create a social graph, it is imperative that users are both encouraged to and freely able to link to each other.  No pesky privacy or security here!

And here's the issue, as Sophos' Paul Ducklin notes when observing each incremental change in privacy.