Facebook’s strength may be its greatest weakness

May 26, 2010

Witness the power of Facebook. About a month ago, one of the social networking site’s users set up a discussion forum entitled “No I will not pay $3.98 a month to use Facebook as of July 10th 2010!” Within a few weeks, more than 825,000 people joined his page. Trouble is the whole thing was based on a faulty premise: Facebook has no such intention to charge.

This perfectly illustrates the so-called network effect that is both Facebook’s greatest strength, and its potential Achilles heel. In its most positive iteration, the network effect works like this: the more people who join Facebook, share their information and make friends, the more compelling the proposition becomes. This creates a virtual barrier to entry in a business where conventional barriers should, theoretically, be very low.

But as the campaign to drum up opposition to a phantom Facebook fee plan illustrates, the network effect can cut both ways. The strength of Facebook’s connections – and the ease with which its users share information – actually serves to amplify its very defects. Nowhere have these become more evident than in the area of privacy.

Indeed, many of the site’s users had no idea of recent changes to privacy settings that allowed personal data to be shared with non-Facebook sites. But almost instantly, status updates, emails and notices sped across the network, many expressing outrage and disappointment with the seemingly sneaky decision taken by Facebook’s management and founder Mark Zuckerberg. Others instructed friends how to change the settings to disable the new and intrusive function.

This groundswell, made possible by the network, is now a business threat. So much so that Facebook has again had to roll back its privacy changes, a measure that almost certainly will slow attempts to make money.  The alterations introduced on Wednesday may quell most of the recent concerns among the Facebook faithful — if not the thousands who have pledged to commit digital suicide on May 31, according to Quitfacebookday.com.

But thanks to the network effect, it’s a fair bet that shaky management decisions over the way it treats users’ information, an area where Facebook appears to have more than its fair share, will keep costing it friends.

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