Rough seas nearly sink Facebook's Beacon

Facebook's "Beacon" advertising program nearly ran aground this week.

First, the liberal activist group MoveOn.org tore into the strategy, which shares members' activity from third-party sites on their Facebook "news feeds," as an invasion of privacy. Then MoveOn upped the ante earlier this week over the program's lack of an opt-out control. Then, on Thursday, reports began to surface that the program was close to being heavily altered or even cut altogether. The advertising program continues to be scrutinized by legal experts, and several advocacy groups have already filed complaints to the Federal Trade Commission.

Welcome to the big time, Facebook. The site, which grew fast and was considered a cultural curio in the wake of its pioneering developer platform launch now must justify a stunning $15 billion valuation and prove that its reported 50-plus million users can be mined for major dollars.

Now the company has received a harsh lesson on what it means to be in the spotlight, and just how tricky it is to use the demographic and behavior information about its readers for targeted advertising. As social media companies ranging from MySpace to Digg have learned, it's the users, as much as the executives, who are in charge.

And just three weeks after announcing the Beacon advertising effort with fanfare in New York, those users along with some very noisy advocacy groups like MoveOn, spoke loudly: they weren't happy.

On Thursday, Facebook customer service representative Paul Janzer posted a note of reassurance to supporters of MoveOn's protest group, hinting that alterations was on the way. That evening, Facebook officially responded with a press release announcing some changes to the advertisements that require users to click an "OK" button before any story is published to their News Feeds.

It's an improvement for sure. MoveOn representatives cited "victory" in an e-mail on Thursday evening, but in a sense, they still didn't get everything they lobbied for. Spokesman Adam Green had told CNET News.com in an e-mail earlier on Thursday that the organization intended to pose two major questions to Facebook about Beacon. "Is it still possible for private transactions made on other Web sites to be displayed publicly on Facebook without explicit permission?" he explained in the e-mail, adding "Is there now a way for users to permanently block Beacon, so they can have peace of mind that the problem is dealt with? (The) answer needs to be yes."

The first question, Green said, was answered with Facebook's press release and the changes to Beacon. "That pretty much was done tonight," Green said in an interview with CNET News.com on Thursday evening. "If it's true, and no private information will be shared without explicit permission, that is definitely a huge step."

Green was hesitant to make a judgment call on the fact that Facebook did not institute a way for users to permanently block Beacon ads. "We're kind of going to wait and see exactly what it looks like when they implement tonight's policy," he said, adding that MoveOn wanted to gauge users' reactions first. It goes without saying that it's good news for Facebook that the activist group isn't making a stink about the Beacon changes not being sufficient--for now, at least.

Either way, there are still some loose ends to clean up.

Social media strategist Oz Sultan said that Facebook may have some image repair to do, primarily because a group as prominent and vocal as MoveOn had attached itself to the cause. "I think there's a bit of damage control that they have to do, more so around the act that it's almost Christmas," he explained, referring to Facebook users who had complained that the entire contents of their holiday shopping lists were published to the site, spoiling many a surprise. "The shopping implications of what people are doing and what they don't want people to know because they want to surprise people, that's definitely going to provide some reason for damage control."

Admitting error, too, may be an embarrassment for the company in the face of its advertising clients, given the confident debut that Facebook Ads made earlier this month. "They basically sat down and said this is the holy grail of advertising," Sultan observed.

On the other hand, while a number of Facebook users were ticked off, others might not have noticed Beacon much at all--or even cared. The controversy over Beacon advertisements didn't reach the fever pitch of user outrage and exposure on the site that the once-controversial News Feed did when it debuted in 2006. The News Feed, which many users saw initially as a flagrant violation of user privacy, was a much more prominent addition to the site than the Beacon ads, which some users still have yet to see.

In response to the News Feed snafu, Facebook founder Mark Zuckerberg posted a public apology on the site, acknowledging that "we really messed this one up." The privacy controls for the News Feed were heavily bolstered thereafter.

But with regard to Beacon, Oz Sultan said, "I don't think a lot of people know this exists." To add to that, many Facebook users probably don't have an issue with it, either, even in its previous incarnation. "A lot of (young people) are totally willing to give up tons of privacy information for like, free crap." In fact, he added, if it had been any time other than the holidays, the reaction might've been far more subdued.

Some retailers who have partnered with Facebook on Beacon ads approve of the change. Among them is Bill Hildebolt, president of Beacon partner ExpoTV.com, who said that while he isn't sure what Facebook has in store, he's optimistic. "I think it's great that they're evaluating the market feedback that they've gotten and that they're thinking about how to evolve the program," he said in an interview. "We totally support them in innovating what they think is best for our mutual users, for themselves, and for the partners."

When asked if he was concerned that new controls on Beacon might make the ads less effective, Hildebolt said he couldn't make that call. "It will become less frequent," he said of users opting not to post Beacon notifications on their News Feeds, "(but) I'm not sure that that will make it less effective." Retailers have good reason to welcome change; as other Beacon partners have hinted before, if users aren't happy with the program there's a good chance they'll blame the retailer rather than Facebook.

Users who still aren't satisfied can rest assured that there's a Firefox plugin that can block Beacon completely, easily returning them to their regularly scheduled Facebook programming.

The challenges are not over for Facebook and its advertising program--after months of Silicon Valley fawning over Facebook's potential, all eyes are still on the young company, and those observers have begun to turn cynical. Neither blocking Beacon nor putting privacy controls on it answers the biggest question, Oz Sultan said, and it's a question that even MoveOn didn't raise. "Facebook's getting all this data, so what are they doing with all this data?" he asked. "This is complete behavioral data on everything you do? It's legally very questionable long term."

He added that the real end result may be that groups like MoveOn, with their fat D.C. Rolodexes, could push lawmakers to address the issue. This is a vague legal area, and this is an area which the laws that are written right now aren't designed to cover," he said. "I think they will push some sort of litigation. What that is, I could not even tell you right now."

But for now, MoveOn's aims are loftier. "We hope this has a ripple effect throughout the industry," spokesman Green said, "and sets a precedent that it's unacceptable to assume that it's OK to share private information publicly without permission."