Facebook's friends without benefit

As the social media site once again tries to grow its revenue, a familiar fear returns

Mark Zuckerberg’s announcement last week that the company he founded in a Harvard dorm room had surpassed one billion users should have been good news to investors, given that Facebook’s value lies in the sheer size of its database of subscribers. But while they heralded the news with a bump in the company’s share price—to $22—investors are still holding it well below its $38 initial public offering (IPO).

Their concern is the inherent contradiction in Facebook’s business model: the bigger the company’s user base, the harder it becomes to harness all that personal data for profit. Since its bungled IPO in May, Facebook has been under intense pressure to monetize its massive social network by selling demographic information to advertisers while somehow still keeping everyone’s name, email address and baby pictures private.

It is walking an ever-thinner line. Last month, it announced it would allow advertisers to match their databases of customers’ email addresses and phone numbers to users’ Facebook accounts to target ad campaigns. Contact information would be partially obscured, Facebook said, so that only computer algorithms, not human eyes, would see it. In August, it revealed it was partnering with retail data collector Datalogix to examine the in-store shopping habits of Facebook users, again promising not to disclose the names of actual users.

None of this has gone over well with privacy advocates. The U.S. Electronic Privacy Information Center has filed a complaint with the Federal Trade Commission over the Datalogix partnership. Bloggers complained after Facebook confirmed it scanned users’ messages for mentions of the websites of its advertisers so it could increase the “Like” count of the advertiser’s Facebook page.

Facebook’s ethical and business dilemma, however, didn’t seem to phase Chief Operating Operator Sheryl Sandberg when she declared at last week’s Advertising Week forum: “We don’t make more money when you share more and we do not give your information to marketers.” As Facebook continues to look for ways to grow its $3.7-billion revenue, convincing people of that may be its biggest challenge.