Facebook and the Value of Free Data

The information technology market is undergoing a major shift towards cloud computing.  While cloud computing only represents 2.8% of the $3.6 trillion information technology market today, analysts expect it to more than double over the next two years (Cantu, 2011).   Moreover, the economics of the cloud are so compelling this author thinks that all compute services will be delivered via the cloud in the decades to come.  Given the clear shift to the cloud, it is worthwhile to explore what cloud computing is, how it works, and potential implications of the cloud for Internet consumers and producers of content.  However, an overarching analysis of the cloud is overly ambitious given the size and scope of the market, therefore, this author will analyze the cloud using the narrow confines of a case study on Facebook, the largest social Internet application in the world.  Therefore, this author compared Facebook to the cloud market in general, and specifically explored the implications of content usage, labor, and privacy in a cloud application, like Facebook.   This author found that Facebook has remarkably similar issues with cloud vendors, and profits from user-generated data while providing only limited privacy protections, in exchange for the use value of the application.

What is Cloud Computing?

            Cloud computing is the result of advances in information technology over the last forty years, and specifically is the result of the Internet architecture.  Whereas, in the era before the network, computing power was largely in the hands of government and large corporations, the coincident revolutions of personal computers and private networks, led to a client server architecture, where application processing occurred on a client computer, and data was stored on a network server.  With the development of the Internet, a global computing network, came the possibility of a new architecture, where every layer of the architecture is centralized, including the application logic, and the network end-points are simply dumb terminals in essence.  While this description is necessarily an oversimplification, it is generally correct.

            As the Internet architecture has matured, increasingly corporations are seeking ways to improve efficiency and reduce the costs of doing business over the network.  Indeed, cost and efficiency gains have led to the advancements necessary to make cloud computing possible.  Important advancements in the shift to cloud computing include autonomic computing, service-oriented architecture, web services, virtualization, and grid computing (Cantu, 2011).  These technologies allow technology professionals to deliver each compute layer as a service, including storage, database, middleware, and applications.  Moreover, as the cloud market has matured, so has the definition.  The National Institute of Standards and Technology (2011) recently released the final draft of the cloud computing definition, conceived of as:

A model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. (p. 1)

In the strictest sense, an application like Facebook cannot be conceived of as cloud computing, because the application is not provisioned for different entities, rather it is simply an application that is available for end users.  While admittedly, the distinction is minor, it remains important.  However, Facebook is similar enough to a cloud application to warrant further analysis.  Specifically, the application logic, the infrastructure, user credentials, user information, user-generated content, and user relationship data are centralized behind Facebook’s corporate firewall.  This architecture gives rise to a number of important questions for both cloud applications and Internet applications.  For instance, what are the implications for user generated content?  Whose data is it?  Who profits from the data?  Who is both responsible and liable for data protection and privacy?  It is these questions that this author will attempt to address in the rest of the paper.

Whose Data Is It?

            When a user registers for a Facebook account, the user is required to load their name, email address, birthday, and gender (Facebook, 2012a).  No other information is required.  However, the application is of limited value without providing additional data.  Typically, users will add personally identifiable information, relationship data, preference data, status updates, location data, photos, and videos to make the application valuable.  Legally, each user is the owner of their data in the application, however the matter is complicated by the social nature of the application (Facebook, 2012b).  For example, if one user posts a photo of another user, the data is owned by the user that posted the photo, an important implication for those concerned about privacy (Facebook, 2012a).   Moreover, through the terms of agreement between Facebook and a user, users assign Facebook a “non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content [posted] on or in connection with Facebook” (Facebook, 2012b, p. 1).  Therefore, while users own the data, Facebook has the right to profit from it.

Of course, the problem with storing user data in Facebook is that like most cloud applications, the application is analogous to a roach motel, it is easy to check data in, but much tougher to check it out.  While Facebook provides a number of application programming interfaces to retrieve data (Facebook, 2012c), it requires technical expertise to access the data through anything but the native Facebook application interface.  Therefore, outside the confines of Facebook, the data is of limited use.  Moreover, the limitations of the application interface make it difficult for non-technical users to substantially transform the data to produce new works. In effect, the structure serves to constrain people from profiting from their data.

Who Profits from User Data on Facebook?

            As made clear in the previous section, while users own their data, Facebook has both the right and the architecture to assure that they are in a position to profit from user data.  In fact, the data only has value when considered in the aggregate.  For example, few would care to pay this author for knowing of a recent ski vacation.  However, a skiing manufacturer might pay a considerable sum to target active adult skiers across the country with targeted advertising for a new line of high performance skis.  Thus, Facebook profits from the free labor of 800 million users.  Indeed, with Facebook’s recent initial public offering, their finances came under intense scrutiny from the investment community.  In 2011, Facebook generated more than $3.7 billion in revenue, 82% of which came from advertising (Boorstin, 2012).  With more than 500 million monthly active users, and 125 billion friend connections, Facebook provides advertisers a platform with reach, relevance, and most importantly, a social context for product recommendations (Boorstin, 2012).  For example, if this author creates a post highlighting the purchase of a set of high-performance skis, the ski manufacturer might send targeted advertising to other skiers in the author’s network.

Croteau, Hoynes, and Milan (2012) point out that firms like Facebook “harvest and harness the free labor of others to generate profits for themselves” (p. 314).  However, that perspective includes only one side of the transaction.  Facebook simply enables a transaction to occur, where users providing content receive a use value, while Facebook creates exchange value from the commodification of users.  In this sense, Facebook is simply following the business model of traditional mass media who provided television content for consumers, in exchange for commodification of consumers into an audience to bring in advertising revenue; new media indeed.  Therefore, in the case of Facebook, is there really exploitation of free labor?  Or are Facebook users receiving value from the use of the application?  This author thinks it is the latter.  In what other way can people stay connected and share their lives with friends and family as efficiently as on Facebook?  Therein lies Facebook’s use value for users.  While the exchange relationship between Facebook users, the company, and advertisers captures the essence of the business model, the business model itself raises significant concerns over the security and privacy of the data that fuels Facebook’s revenue.

Debates over data security and privacy have raged over the last two decades as society has attempted to come to terms with the implications of the growing amount of data.  Facebook in particular, has come under intense public scrutiny for a series of data privacy policy changes over the last six years that erode data privacy for users (Electronic Privacy Information Center, 2012).  Moreover, Facebook recently stands accused of matching Facebook data with data from Datalogix to improve ad targeting, in potential violation of a recent privacy settlement with the FTC (Electronic Privacy Information Center, 2012).  In fact, Facebook no longer has a privacy policy, rather they express their point of view in a data use policy (Facebook, 2012a).  While Facebook has taken steps to improve data security by adopting HTTPS as an optional user setting, the company increasingly is altering their data use policy to introduce new capabilities that grow revenue at the expense of user privacy (Electronic Privacy Information Center, 2012).  In short, until users decide that costs, in the form of privacy loss, outweigh the use value, it is unlikely Facebook will change their data use policy in a way that favors improved privacy protection.

Conclusion

            Technology companies like Facebook have an amazing business model.  The company has figured out how to generate immense revenues from the data that people provide about themselves, their friends, and their family, in exchange for a more efficient way to keep in touch.  By locking the user data into the Facebook application, Facebook assures that the data is only useful to Facebook.  Moreover, given the legal terms associated with use of the application, users readily grant Facebook the license to profit from the invasion of their privacy.  Future research should explore whether the development of open standards for social relationship data portability could spur the company to provide greater privacy protection based on the threat of customer churn, in much the same way that cell phone number portability enabled greater choice and competition in the wireless industry.

References

Boorstin, J. (2012). Inside Facebook’s money machine. Techbiz.  Retrieved from http://money.msn.com/technology-investment/post.aspx?post=869a1b6c-0bb7-47b3-ac0a-25d10f6a5404

Cantu, A. (2011). The History and Future of Cloud Computing. Retrieved from http://www.forbes.com/sites/dell/2011/12/20/the-history-and-future-of-cloud-computing/2/

Croteau, D., Hoynes, W., & Milan, S. (2012). Media/society : Industries, images, and audiences (4th ed.). Thousand Oaks, CA: SAGE.

Electronic Privacy Information Center. (2012). Facebook Privacy. Retreived from http://epic.org/privacy/facebook/

Facebook. (2012a). Data Use Policy. Retrieved from http://www.facebook.com/about/privacy/your-info

Facebook. (2012b). Facebook Terms. Retrieved from http://www.facebook.com/legal/terms

Facebook. (2012c). Graph API – Facebook Developers. Retrieved from http://developers.facebook.com/docs/reference/api/

National Institute of Standards and Technology. (2011). Final Version of NIST Cloud Computing Definition Published. Retrieved from http://www.nist.gov/itl/csd/cloud-102511.cfm