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Facebook is the world's largest social networking company and widely considered to be one of the most powerful internet companies in the world.

So powerful is Facebook that many observers see it as a potential threat to entrenched players like Google.

Despite Facebook's power, size and revenue, however, it remains privately-held thanks in large part to co-founder Mark Zuckerberg's desire to keep the company free from external influences which might be distracting and harmful.

But that soon could be changing according to the Wall Street Journal, which is reporting that the Palo Alto-based company is prepping an IPO in the second quarter of 2012.

If The Wall Street Journal's sources are correct, the Facebook IPO will be one of the biggest tech IPOs in recent memory: the company is reportedly seeking to raise $10bn and might be able to do so at a valuation of around $100bn, making it more valuable than big technology and media brands like Cisco and Disney.

But Facebook's public debut may not be smooth sailing. After all, the markets are still volatile and the debt crisis in the EU could send the global economy into a tailspin at any time. And then there are EU regulators who want to force Facebook to change its ways.

As reported by The Telegraph, the European Commission is planning to issue a new directive in January which would cramp Facebook's ability to target ads to its users based on the profile information they've supplied to the company.

The Telegraph's Jason Lewis explains:

Viviane Reding, the vice president of European Commission, said the Directive would amend current European data protection laws in the light of technological advances and ensure consistency in how offending firms are dealt with across the EU.

While it's not quite clear what the directive will say in precise terms, it is clear that regulators are concerned about the amount of data Facebook has at its disposal and don't believe that the company's users understand how that data is or could be used to target advertising to them.

So expect something that seeks to minimize what Facebook can do with the data it collects and maximize the extent to which Facebook will have to go out of its way to 'warn' users, something which probably wouldn't help it deliver better ROI for advertisers.

Facebook, for its part, believes that the privacy concerns voiced by the European Commission are misplaced. "We can show relevant ads in a way that respects individual privacy because our system only provides advertisers with anonymous and aggregate information for the purpose of targeting ads," a Facebook spokesperson told The Telegraph. "We do not share people's names with an advertiser without a person's explicit consent and we never sell personal information to third parties."

If that's the case, the European Commission directive surely won't apply to Facebook, right? This is a European Commission directive, and you can be sure it won't be that simple.

So where does this leave Facebook? That remains to be seen. Barring another economic collapse, the company's plans to go public next year certainly won't be derailed by EU regulators. But the social network is in a precarious position.

Right now, many advertisers are spending money on Facebook ads because it has massive reach, not because those ads have proven to be of great efficacy.

For Facebook to sustain a $100bn valuation, it needs to deliver better ads. Realistically, it can only do that by using the data its users provide, and the pressure to use that data more aggressively will likely only increase when the company has public shareholders to answer to.

With the EU already staring over Facebook's shoulder, the company's inability to mine its data in search of advertising gold could prove very detrimental as it tries to realize its still-untapped potential.

Patricio Robles

Published 29 November, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2380 more posts from this author

Comments (1)

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Julian Ranger

If the data stays within Facebook boundaries and is used to target advertising then I don't see a difference from Sainsbury's store cards, Ocado on-line shopping, Amazon "what you may also be interested in", Google, etc. Some people find it creepy that they are targeted adverts (especially if they have fringe/minority tastes), but that I think is fairly accepted practice where you give up your data for a service. Yes, Facebook should make clear when sign up for the service, but I don't see this as the greatest privacy invasion. Additionally, if Facebook is passing on my data to their advertisers then I should definitely have to opt in for that - and do so explicitly and not behind confusing words; just as I would expect to do so with the second tick box on most physical forms used in the UK.

A far greater privacy issue is the "confusopoly" which encourages me to be more open with my status updates and information (so Facebook benefits by search and related traffic) than is likely to be my intent or be good for me in the long run. This is the area where Facebook are most pernicious in their approach to privacy - much self-harm is caused as a result. It would be better if people realised that a network cannot be really public and private at the same time. Either be public (as per twitter) or choose a private social network which are beginning to be provided (e.g. dadapp.com).

over 4 years ago

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