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Facebook and the Government: Can They Ever Login and Be Friends? (Full Story)
Comments () | Published June 6, 2011
Pull up your browser and type this into the Google search box: "How does . . . ." Odds are the first suggested result you see will be ". . . Facebook make money?," closely followed by ". . . a bill become a law?" They aren't unrelated questions.

As popular as Facebook is, because it's a free service lots of people don't understand its business model. Plenty of experts don't understand its business model, either--at least not well enough to figure out how Goldman Sachs earlier this year came up with a reported $50-billion valuation on a seven-year-old company that has never had more than $2 billion in annual revenue.

Facebook makes money off advertising--those little ads you see on your Facebook page--as well as partnership deals with app developers and external Web sites. But it isn't selling ads in a traditional sense. It's selling data.

Not your data. Not exactly.

"Facebook doesn't share your information with advertisers and never sells your information to anyone," Adam Conner assures me. Andrew Noyes says the same thing--exactly. So does Marne Levine. It's the primary talking point at Facebook DC, one of the complicated things the company is trying to explain to policymakers.

As Conner puts it, Facebook information is "anonymized in an aggregate." That's a fancy way of saying that what advertisers buy from Facebook is access to a pool of people who share certain interests or are located in certain parts of the world, or both. It's not access to you personally--it's access to people like you.

This gives Facebook economic incentive to push you to disclose more of your information. The more Facebook can tell marketers about you, the more valuable that aggregated data becomes.

But if a bill limiting Facebook's ability to control and to sell your "anonymized" data becomes law, Facebook won't be worth $50 billion anymore. Because it's that data that separates Facebook from online competitors such as Google and Yahoo. Even with information anonymized in an aggregate, Facebook can tell marketers more about who you are, how old you are, where you are, and what you like than anyone else. Any action limiting its ability to do so could hinder the company's future.

Next:"Facebook knows more about me than New York state does."

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Posted at 11:00 AM/ET, 06/06/2011 RSS | Print | Permalink | Comments () | Washingtonian.com Articles