Is Facebook Becoming a Social AIG? / by Dan Weingrod

Over the past few days this chart about Facebook’s privacy changes has been making its way across the Web. It’s one of a number of posts that have spurred the growing, lively, and very useful, debate about Facebook’s role in and position on privacy. Lately debate has slowly begun to coalesce into two vaguely opposing camps. On one side is the “personal responsibility” camp. This group’s position is that online privacy is a personal responsibility. You need to think about what you are posting and curate it. And besides Facebook is a great service that you are using for free, so deal with it!! . On the other side are th open Web and Privacy advocates. Their point of view is that Facebook’s privacy settings are too complicated and the level of accessible personal data that comes from the new “like” button will store a level of publically accessible information that will ultimately come back to haunt you. The open web part of this group is concerned as much by Facebook’s proprietary approach to social media. Their point would be that it is the people who make Facebook work that have lead to its success, so deal with it Facebook!! The debate has led to some highly public Facebook defections, the huge popularity of the above illustrated Google search and the announcement and rapid funding of a Facebook alternative, coyly named Diaspora, which is being put together by, of all things, a group of college students.

It’s kind of tough to get a firm handle on this debate. At times I feel like I belong in both camps. Facebook is a great service, its growth and popularity has opened up the potential and reality for social media and community in a very positive way. But reading my favorite economics blog made me realize that the way to look at Facebook might be to compare it to AIG and the 2008 bailout.

The reason for AIG’s collapse was that it was so deeply entwined in supporting a wide range of complex financial products at a huge scale that it became “too big to fail”.  You can already draw some parallels between Facebook and AIG of 2008: Immense scale, traffic that has topped Google’s, a set of products that casual users don’t quite understand and most importantly, with the Open Graph platform, a way to entwine itself across identities and Web properties in ways that is difficult to predict.

To push the analogy further, with nearly 500 million users, (and dropping?), Facebook is building and supporting an innovative set of social products that could make your life on the Web easier by connecting you to like minded people and communities. However, these products could also make connections that you may not be interested in or may not make sense. For example, my 17 year old son, (who loathes his role as my Facebook focus group of one), complained to me that friends who have “liked” his music page have ended up with him included within their other musical preferences. The problem is that while he may not mind being in the same grouping as Radiohead and Bon Iver he figures that they will drop him because he really does not represent part of their public musical definition and with that, there goes a social connection that he values.

This problem of nuance may be relatively minor, but the bigger problem is that the ever growing interconnectedness of “likes”, Open Graph connections and default settings could increasingly project your personal preferences into areas that may not make a positive contribution to your social being. Even more troubling is that a full view of personal preference data, which is owned by Facebook, could easily be used to create a very deep and personal portrait of who you are in ways you may not be able to control. As a marketer, there are things I can like about this if used correctly. As a social media participant I’m looking for the “dislike” button. My concern is that we may find ourselves needing to “unwind” these types of complex social products in the same way that we ended up having to unwind AIG’s credit default swaps. Perhaps this is just part of an ongoing organic definition of what social media is, but I’d hate to see our investment crash. What do you think?