Why privacy plays a part in social network's fiscal future

As social networks like Facebook and LinkedIn strive to formulate sustainable business models built upon advertising or the selling of premium services, the biggest hurdle they face might rest within their users' increased awareness of online privacy.

More on CIO.com Read the Full Interview with Facebook's Chief Privacy Officer, Chris Kelly Facebook Connect: What's Next for Your Facebook Info? How to Set Your Facebook Privacy Settings the Right Way

The common assumption that social networking users don't care about privacy is misguided. The majority of people who use social networks (nearly 60 percent or more) have already modified their privacy settings, according to two separate research studies from the Pew Internet & American Life Project and School of Information and Library Science. Furthermore, privacy experts warn that an unfortunate (but perhaps inevitable) security breach that exposes user data over social networks in the coming years could cause a privacy tipping point in which users push back in a more substantive and widespread way.

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As social networks like Facebook and LinkedIn strive to formulate sustainable business models built upon advertising or the selling of premium services, the biggest hurdle they face might rest within their users' increased awareness of online privacy.

More on CIO.com Read the Full Interview with Facebook's Chief Privacy Officer, Chris Kelly Facebook Connect: What's Next for Your Facebook Info? How to Set Your Facebook Privacy Settings the Right Way

The common assumption that social networking users don't care about privacy is misguided. The majority of people who use social networks (nearly 60 percent or more) have already modified their privacy settings, according to two separate research studies from the Pew Internet & American Life Project and School of Information and Library Science. Furthermore, privacy experts warn that an unfortunate (but perhaps inevitable) security breach that exposes user data over social networks in the coming years could cause a privacy tipping point in which users push back in a more substantive and widespread way.

"Privacy will become more important when the information is used for more nefarious reasons, like for stealing your identity," says Larry Ponemon, president of the Ponemon Institute, a privacy research firm.

For their part, executives at major social networking sites and their advertisers argue that a culture of greater openness on the Web will prevail. They also say increased user attention to privacy could actually be advantageous to their business: If people feel comfortable with who can see their Facebook profile, for instance, they are more likely to be honest with the information they contribute to the network, which helps in serving up relevant ads that people might click on.

"As people incorporate more openness into their lives, over time we can allow for that evolution with them," says Chris Kelly, Facebook's chief privacy officer. "There's a greater authenticity to their interactions online if they know who they are signaling their interests and activities to."

Why Privacy Is Gaining Traction With Normal Users (Hint: It's Not Beacon)

Social networking and online advertising experts like to analyze the fallout of the Beacon Advertising incident back in November 2007. This was the main idea behind Beacon: If a Facebook user bought an item from a third-party website participating in the Beacon ad program, that transaction would be published to their friends' Facebook newsfeeds, the main content stream that runs down the center of their home pages. (For example, "Your friend John Smith just bought two tickets to the new Batman move from Fandango.com.")

Despite the fact that major news outlets published stories about privacy concerns and activist organizations like Moveon.org took Facebook public relations for a ride, the incident only garnered the attention of a loud and influential minority - and little more. After Beacon, Facebook did right by its users and rolled out the most comprehensive privacy settings in the industry, but the general consensus was that people wouldn't use them.