There’s a lot of excitement about Facebook’s impending initial public offering. Some people expect to get rich. Others are more cautious, and want to wait out any potential volatility. But there’s one aspect that few have considered.
The fiduciary duty of the management and board of directors includes getting the most possible value for shareholders.
Now, instead of equity funds and long-term investors, Facebook will have a more liquid security and a far more fickle group of stakeholders who can buy, sell and short the stock. These stockholders will want returns based on the company’s value, and the most valuable thing that Facebook has is the data of the people who use it.
One way to look at Facebook is as a social genome project — the genetic code of our decision-making.
Just as genetic researchers mapped the human genetic code, Facebook’s uncounted connections could let researchers, businesses and the government decode people’s most basic preferences. This includes both the decisions we did, and didn’t, make.
It’s not just a library card that shows the book you checked out; it’s a full report on the titles and topics you considered and declined. With enough detail, such deep data could allow predictive models based on any number of topics.
Information on our choices is extremely valuable; for advertisers, it’s the silver bullet that could let them hit each and every target. They say half of every advertising dollar is misspent — but you never know which half.
With such exact targeting, the financial waste could drop to pennies on the dollar, and people who’d rather not be bothered by junk they don’t want could see fewer irritating ads and more appealing options. For social scientists and government researchers, this deep data would dwarf the census, voting and income tax data currently available to them.
But it’s not clear sailing. Late last year, Facebook settled charges the Federal Trade Commission leveled that the site repeatedly made data public, despite promising privacy.
The settlement forbids Facebook from overriding privacy preferences without consent, and requires third-party audits of its privacy program. Facebook founder Mark Zuckerberg responded by noting some high-profile mistakes and promising to become a leader in transparency and privacy controls.
The IPO could be a game-changer. Facebook will face the normal market pressure any high-performing company faces.
Expectations that its valuation could reach 12 figures makes the pressure even more intense. Exploiting its most valuable asset — its data — in one way or another may become inevitable. It could even be argued that the company may risk shareholder lawsuits if it doesn’t fully leverage its resources.
Some Facebook users are diligently concerned about the use or potential misuse of their private information and would no doubt raise an outcry. Others are complacent, willingly trading privacy for friendship and connection.
You’d have to practically be a hermit to retain your privacy these days — avoiding talking on cellphones in public, never searching the Web, staying in so no one could snap and post your photo, etc. Realistically, many younger Americans don’t even think about it.
Regardless of the path that Facebook takes on the road to shareholder value, it is safe to say that the ongoing cultural battle over privacy won’t end any time soon.
John F. Sandy Smith is a partner in Womble Carlyle’s Atlanta and Silicon Valley offices. He is a Trustee Emeritus at Stanford University, serves on the Stanford Institute for Economic Policy and Research Advisory Board and chairs the Advisory Board of the Institute for Research in Social Science at Stanford University.
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