The Tradeoff between Privacy and Profits
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook (NASDAQ: FB) is making a risky and controversial move with its sponsored stories, an advertising product that turns “likes” into ads delivered to that person's friends. The product has interesting potential and many advertisers could find the offering attractive, but at the same time Facebook needs to be very careful about privacy issues and negatively affecting user experience. Investors in Facebook have good reasons to monitor this kind of initiatives closely, since they could be really damaging for the company if they backfire.
Amazon (NASDAQ: AMZN) is one of the clients using this new advertising method, and it seems like a good alternative for the online retailer. If you see that a friend with similar interests likes a book, for example, that could be a good indication you might want to buy it for yourself. And the timing of the ad can be quite effective since it's seen by users while they are online, facilitating the process of a purchase via internet. Facebook seems to have found a smart way to capitalize the information coming from its users and turn it into a potentially viable product.
On the other hand, caution is required in such a sensible subject related to privacy -- users agree to these kind of ads in the terms of service, but that doesn't mean they'll like it. Facebook is risking losing its most valuable asset -- users -- and the company needs to be very careful about any initiative with the potential to further harm its already tarnished reputation.
And the method needs some improvement too; many companies give discounts or other benefits to users who “like” them on Facebook, so pushing the like button isn't necessarily an indication of liking that company or product. Also, users sometimes “like” a company just to receive updated information about it, like new product launches, for example. If this kind of advertising becomes habitual, we could expect some behavior changes from both users and advertisers.
Companies would have more incentives to give special benefits for those who like them on Facebook and the thumb up symbol could lose its meaning as a genuine expression of people's opinion. At the same time, users could become more reluctant to giving likes if they feel that information is used in a non-transparent way.
Microsoft (NASDAQ: MSFT) has recently taken the opposite road when the company decided to enable the Do Not Track technology by default in Windows 8. Microsoft is putting users before online advertisers by deciding that the correct default assumption should be that users would like their privacy respected, and prefer not to be tracked unless explicit permission is granted.
Facebook is under pressure to generate results for investors after its controversial IPO and this new initiative can provide something of more value to advertisers than the typical Facebook ads, which have been much criticized lately. But Zuckerberg and his team need to be very careful for the possibility of hurting the company's relationship with its users.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Facebook, and Microsoft. Motley Fool newsletter services recommend Amazon.com and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.