Facebook, meet the Regulators…

May 17th, 2010 | Posted by

By whatever measure you choose, Facebook is growing up fast. The company reports 400 million active users spending 500 billion minutes per month. Over 70% of users are outside the United States. And all this in an unbelievable 6 years since the site was launched in a student dorm room.

Such sudden growth does not come without attracting considerable attention from regulators. In the US, several consumer protection agencies filed a complaint with the Federal Trade Commission and sent a letter to Congress that charges Facebook with engaging in unfair and deceptive trade practices in violation of consumer protection law. EU data protection officials have written to Facebook saying that the plans to share user’s information with outside websites is unacceptable. And here is lies the core of the problem in Facebook’s next phase of growth.

To become a viable business operation, Facebook needs to find a way of monetizing it’s core asset – which is all that data about Facebookers. There is a revenue stream from the application developers, but this will not be enough to satisfy the group of private equity backers. The company reported that it was cash-flow neutral in September 2009 but the major growth will only come from a new revenue stream. Targeted marketing is where the company will gain huge revenues, but will the regulators in the UK, EU and US ever allow them to do that? The answer to that question remains unclear but there is going to be a ugly and dirty fight.

As a backdrop to the regulator-company discussions, comes a marked anti-facebook rhetoric. The query on Google of “how do I delete my Facebook account?” (the answer is with considerable difficulty) has become a very popular query showing concern amongst consumer themselves. Riding on the wave of anti-facebook sentiment come Diaspora , a project that looks to develop an open-source social network that eliminates the midddleman, the “anti-Facebook. They raised their required capital, admittedly not much, in under a month. Another example of the backlash is a site called somewhat tongue in cheek, Websuicide which helps users delete their presence on social network sites. Facebook blocked the site in January this year and there is current threat of legal action.

For corporations such as insurers looking to leverage sites such as Facebook, these developments are worth taking on board. Celent has been encouraging insurers to look at where social networking might play a role in an overall digital marketing strategy. This is still the case – the current debate with the regulators underlines just how much of an emerging area this is. And with all emerging technologies, the sage advice is always to proceed with caution. The coming months will bring some clarity in the rules of engagement between social network sites and regulators, but it’s hard to imagine a world without Facebook. Facebook is probably here to stay – the question will be just how big their sandpit will be.