How Far Is Too Far for Facebook?

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Investors seemed to appreciate Facebook's (Nasdaq: FB  ) mounting desire to know every little thing about you and your friends. Last week, when the company scooped up Israeli face-recognition software company for a rather paltry $60 million or so, investors pushed shares to one of the largest one-day gains in Facebook's short public history. There's nothing that screams "buy" like having Big Zucker increase his hold on the world's personal details.

Is this a good thing? In the short term, it may very well be. Over the long run, Facebook's obsessive desire to track, catalog, and record every user's every move could be its greatest downfall.

Zuck knows all your secrets
Facebook already has the technology to recognize who's who in your latest party pictures. Users who uploaded group photos will see suggestions to tag anyone in their friends list who happens to trigger the company's existing algorithms. That's actually's technology in action, but by absorbing it completely, Facebook can funnel more resources into making it more effective and more multi-platform. The next frontier is clearly mobile photo tagging.

The technology is currently limited to people already on a user's friends list, but Facebook has a long history of undermining privacy without consulting anyone. It's certainly conceivable that the company could use enhanced recognition software behind the scenes, without informing users.

A Slate article on the acquisition pointed out that existing Google (Nasdaq: GOOG  ) facial-recognition technology, combined with Facebook data and some clever Carnegie Mellon researchers, led to names -- and Social Security numbers, in some cases -- starting with nothing more than webcam snapshots of complete strangers. Former Google CEO Eric Schmidt is opposed to using that technology for that purpose, but Mark Zuckerburg's intentions are somewhat opaque when it comes to data and privacy.

More worrisome still are recent reports that Facebook is rolling out a feature called "Find Friends Nearby." The feature, which may be similar to the "Nearby" tab of the Google+ mobile app (am I the only one who uses that?), allows users to connect with others based on proximity and shared interests.

Consider the kerfluffle that erupted over Girls Around Me, a short-lived app for Apple (Nasdaq: AAPL  ) iProducts. The app used Foursquare location data to, well, find girls nearby and connect with them on Facebook, all without their knowing anything about your intentions until the friend request showed up. Apple quickly shut the app down, so it seems a bit odd that Facebook would implement what seems like nearly identical functionality. Exact locations may not be revealed, but that's not really a limiting factor for any determined stalker.

No honor among snoops
Facebook's hardly the only company that risks eroding your privacy in pursuit of its own profits, but it could face a heavier backlash because of how its actions are perceived. Every effort the company makes to target users more accurately, from sponsored stories to facial recognition to location-based services, usually has a direct impact on the users' experience with the site.

When Microsoft (Nasdaq: MSFT  ) and Google tussle over privacy policies, users might sense that something's amiss, but it's hard to say what. If your Google or Bing search results look a little different from your best friend's, you may never know -- but if your best friend's predilection for Mongolian barbecue and cheesy horror flicks gets picked up by the social network, you might very well see ads directing you to Genghis Khan's House of Meat and Murder as a result.

The public's distrust of Facebook earned it one of the lowest customer satisfaction scores among major companies in the United States, according to the American Customer Satisfaction Index, placing it below such hated symbols of financial malfeasance as Bank of America (NYSE: BAC  ) and JPMorgan Chase. The social network underperformed every major tech competitor, including Apple, Google, and even Microsoft, by a substantial margin. When your users seem to be waiting for a better alternative, it may not be prudent to undermine their privacy in such blatant ways.

Facebook might be scaring its users off, but there are other hot tech companies still making all the right moves. The Motley Fool's top tech analyst has identified one other recent Internet IPO that's worth your time. Find out what makes it the best stock for your growth portfolio in our latest and greatest free research report. Get the inside scoop.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more news and insights. The Motley Fool owns shares of JPMorgan Chase, Facebook, Bank of America, Apple, Google, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Apple and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On June 26, 2012, at 2:44 AM, jacobandersen72 wrote:

    I hope the FTC/SEC blocks Facebook from buying one of its strongest competitors -- Instagram. Instagram is a photo based social network that now has 65,000,000 users. its one of the strongest competitors facebook has seen to date. Facebook has network effects. Without network effects Mark and Co. would have had strong competition a long time ago. Instagram is one of the few companies that found a hole in Facebook's armour through its early jump on mobile platforms. It would be a shame to simply watch Facebook buy away the competition. Do the right thing FTC/SEC and block the buyout. Make Facebook compete.

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