Rise of the Facebook-Killers

At the pinnacle of the social network's success, its critics are busy building its replacements

By now, the story of the beginnings of Facebook has been retold so many times that it has taken on the patina of myth. A lonely nerd who got no respect at school, young Zuckerberg found a golden ticket, a dream of an interconnected world. In order to realize this dream, he had first to defeat the grasping and socially privileged Winklevoss twins, which he did through cunning and trickery.

Several books and an Aaron Sorkin movie have told and retold this tale, though elements of this legendary account remain hotly disputed. But the truth is that this saga is irrelevant. What matters about Facebook is not its origin story, but rather what happened after. Today, Facebook reports annual profits of $1 billion. Two weeks ago, Facebook filed the necessary paperwork for an initial public offering of $5 billion, valuing the company somewhere between $75 and $100 billion. The numbers are staggering. By way of comparison, when Google went public in 2004, it was valued at just $23 billion and raised $1.9 billion from investors.

Where does such a stupefyingly large valuation come from? Not the users, obviously. We don't pay a dime to maintain our profiles. And while Facebook is admirably "sticky," in the parlance of online advertisers, that's not enough to justify it either.

A longtime champion of the free-software movement, Columbia Law School professor Eben Moglen predicts Facebook will be extinct in a matter of months.
Emily Berl
A longtime champion of the free-software movement, Columbia Law School professor Eben Moglen predicts Facebook will be extinct in a matter of months.
An activist and programmer, Sam Boyer is helping to build the Federated General Assembly, a decentralized network designed for the Occupy movement.
Emily Berl
An activist and programmer, Sam Boyer is helping to build the Federated General Assembly, a decentralized network designed for the Occupy movement.

What makes Facebook so valuable isn't the Web ads it serves up, but rather the unprecedented amount of information it has about its users, which it can then sell to third parties. Business intelligence—the data a company can scrape together about its customers—is the fastest-growing segment of enterprise computing. Major tech companies are snapping up companies that make business-intelligence software. But the software that does the data mining is only a tool—what really matters is how much data you have. And Facebook has a lot.

"Imagine what it is to run code like that on top of a database with billions of people's lives in it," Moglen says. "The business-intelligence layer of Facebook—the layer nobody sees—that's where the whole $100 billion future supposedly is."

Some argue that the age of social media has so fundamentally reordered our social lives that privacy as we know it is obsolete, a concept increasingly without relevance or utility in our lives. Moglen says that's bullshit.

"Privacy isn't an antiquated idea," Moglen says. "That's like saying fresh air over the Grand Canyon is antiquated when you own a copper smelter. We know it's wrong to invade people's privacy. We haven't gotten rid of the laws that say it's a crime to look in people's windows or steal their personal information."

The problem, Moglen argues, is that Facebook's usurpation of privacy isn't an individual matter that single users can decide to make their peace with. It's ecological: What you share and what you click on affects what Facebook knows about your friends, too. And in the aggregate, all this personal information helps build a machine that can know the past and present and make good guesses about the future, a machine whose insights are incredibly valuable to everyone from corporations to state-intelligence services.

Still, conventional investor wisdom holds that privacy issues won't threaten the Facebook juggernaut. As disturbing as the company's track record on privacy is, the backlash hasn't managed to slow Facebook's meteoric rise to 800 million users. As tech editor Rafe Needleman wrote recently, "Facebook's privacy flubs will not amount to much, as long as the company keeps changing its policies so frequently that nobody can keep up with what Facebook is actually sending to other users and advertisers."

That might be true so far in the United States, but there are early signs in Europe that Facebook's privacy shell game might be breaking down.

Max Schrems, a 24-year-old Austrian law student, has launched a three-year campaign against Facebook's privacy incursions, using Europe's stricter protections to exert a surprising amount of leverage on the company.

Schrems's campaign has resulted in pending legislation that would force Facebook to let its users opt out of its data collection entirely and force the company to delete the data it has collected on a user if asked to.

The legislation might be the least of Facebook's problems. The publicity could be worse. Schrems also used an Irish court to force Facebook to turn over all the information it had collected on him. What he got back was 1,222 pages of data, including information he'd never agreed to let them have and some that he had deleted. Under pressure, Facebook has pledged to European regulators that it will change its ways. But 40,000 people have already followed Schrems's lead and asked Facebook Ireland for their own records. In Europe at least, Facebook's users are becoming increasingly aware that Facebook is first and foremost a surveillance mechanism, and they don't like it. If that realization spreads, Facebook's most precious asset—its users—could stampede and flee to a safer network. For that to happen, the safer network, decentralized—or, in social networking parlance, "federated"—will have to exist. But federated networks aren't far off.

Sitting in the room that February night when Moglen voiced his call to action, four young NYU students—Daniel Grippi, Maxwell Salzberg, Raphael Sofaer, and Ilya Zhitomirskiy—took up his challenge.

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