How Facebook Is Redefining Privacy

Sometime in the next few weeks, Facebook will officially log its 500 millionth active citizen. If the website were granted terra firma, it would be the world's third largest country by population, two-thirds bigger than the U.S. More than 1 in 4 people who browse the Internet not only have a Facebook account but have returned to the site within the past 30 days.

Just six years after Harvard undergraduate Mark Zuckerberg helped found Facebook in his dorm room as a way for Ivy League students to keep tabs on one another, the company has joined the ranks of the Web's great superpowers. Microsoft made computers easy for everyone to use. Google helps us search out data. YouTube keeps us entertained. But Facebook has a huge advantage over those other sites: the emotional investment of its users. Facebook makes us smile, shudder, squeeze into photographs so we can see ourselves online later, fret when no one responds to our witty remarks, snicker over who got fat after high school, pause during weddings to update our relationship status to Married or codify a breakup by setting our status back to Single. (I'm glad we can still be friends, Elise.) (See pictures of Facebook's headquarters.)

Getting to the point where so many of us are comfortable living so much of our life on Facebook represents a tremendous cultural shift, particularly since 28% of the site's users are older than 34, Facebook's fastest-growing demographic. Facebook has changed our social DNA, making us more accustomed to openness. But the site is premised on a contradiction: Facebook is rich in intimate opportunities — you can celebrate your niece's first steps there and mourn the death of a close friend — but the company is making money because you are, on some level, broadcasting those moments online. The feelings you experience on Facebook are heartfelt; the data you're providing feeds a bottom line.

The willingness of Facebook's users to share and overshare — from descriptions of our bouts of food poisoning (gross) to our uncensored feelings about our bosses (not advisable) — is critical to its success. Thus far, the company's m.o. has been to press users to share more, then let up if too many of them complain. Because of this, Facebook keeps finding itself in the crosshairs of intense debates about privacy. It happened in 2007, when the default settings in an initiative called Facebook Beacon sent all your Facebook friends updates about purchases you made on certain third-party sites. Beacon caused an uproar among users — who were automatically enrolled — and occasioned a public apology from Zuckerberg. (See how to delete your Facebook profile.)

And it is happening again. To quell the latest concerns of users — and of elected officials in the U.S. and abroad — Facebook is getting ready to unveil enhanced privacy controls. The changes are coming on the heels of a complaint filed with the Federal Trade Commission (FTC) on May 5 by the Electronic Privacy Information Center, which takes issue with Facebook's frequent policy changes and tendency to design privacy controls that are, if not deceptive, less than intuitive. (Even a company spokesman got tripped up trying to explain to me why my co-worker has a shorter privacy-controls menu than I do.) The 38-page complaint asks the FTC to compel Facebook to clarify the privacy settings attached to each piece of information we post as well as what happens to that data after we share it.

Facebook is readjusting its privacy policy at a time when its stake in mining our personal preferences has never been greater. In April, it launched a major initiative called Open Graph, which lets Facebook users weigh in on what they like on the Web, from a story on TIME.com to a pair of jeans from Levi's. The logic is that if my friends recommend something, I'll be more inclined to like it too. And because Facebook has so many users — and because so many companies want to attract those users' eyeballs — Facebook is well positioned to display its members' preferences on any website, anywhere. Less than a month after Open Graph's rollout, more than 100,000 sites had integrated the technology. (See five Facebook no-nos for divorcing couples.)

"The mission of the company is to make the world more open and connected," Zuckerberg told me in early May. To him, expanding Facebook's function from enabling us to interact with people we like on the site to interacting with stuff our friends like on other sites is "a natural extension" of what the company has been doing.

In his keynote announcing Open Graph, Zuckerberg said, "We're building a Web where the default is social." But default settings are part of the reason Facebook is in the hot seat now. In the past, when Facebook changed its privacy controls, it tended to automatically set users' preferences to maximum exposure and then put the onus on us to go in and dial them back. In December, the company set the defaults for a lot of user information so that everyone — even non-Facebook members — could see such details as status updates and lists of friends and interests. Many of us scrambled for cover, restricting who gets to see what on our profile pages. But it's still nearly impossible to tease out how our data might be used in other places, such as Facebook applications or elsewhere on the Web. (See TIME's video on how people of all ages are connecting through Facebook.)

There's something unsettling about granting the world a front-row seat to all of our interests. But Zuckerberg is betting that it's not unsettling enough to enough people that we'll stop sharing all the big and small moments of our lives with the site. On the contrary, he's betting that there's almost no limit to what people will share and to how his company can benefit from it.

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Since the site expanded membership to high schoolers in 2005 and to anyone over the age of 13 in 2006, Facebook has become a kind of virtual pacemaker, setting the rhythms of our online lives, letting us ramp up both the silly socializing and the serious career networking. Zuckerberg's next goal is even more ambitious: to make Facebook a kind of second nervous system that's rapid-firing more of our thoughts and feelings over the Web. Or, to change the metaphor, Facebook wants to be not just a destination but the vehicle too.

"I'm CEO ... Bitch"
Facebook's world headquarters in Palo Alto, Calif., looks like an afterthought, a drab office building at the end of a sleepy stretch of California Avenue. Lacking the scale of Microsoft's sprawling campus or the gleaming grandeur of Google HQ, Facebook's home base is unpretentious and underwhelming. The sign in front (colored red, not the company's trademark cobalt blue) features a large, boldface address with a tiny Facebook logo nestled above. (See 10 tech trends for 2010.)

Inside the building, Facebook crams in hundreds of employees, who work in big, open-air bullpens. Without cubicles or walls, there isn't much privacy, so each desk seems like, well, a Facebook profile — small, visible-to-all spaces decorated with photos and personal sundries. Zuckerberg spent the past year in a dimly lit bullpen on the ground floor. But perhaps in a concession to the fact that the CEO needs some privacy, the 26-year-old billionaire recently moved upstairs to a small office, albeit one with a glass wall so everyone can see what he's doing in there.

Steve Jobs has his signature black turtlenecks; Zuckerberg usually sports a hoodie. In Facebook's early years, he was the cocky coder kid with business cards that read, "I'm CEO ... Bitch." (Zuckerberg has said publicly they were a joke from a friend.) And elements of the Palo Alto headquarters — snack tables, Ping-Pong — still impart some semblance of that hacker-in-a-dorm-room feel. (See the top 10 Internet blunders.)

The office's design reflects Facebook's business model too. Openness is fundamental to everything the company does, from generating revenue to its latest plans to weave itself into the fabric of the Web. "Our core belief is that one of the most transformational things in this generation is that there will be more information available," Zuckerberg says. That idea has always been key to Facebook's growth. The company wants to expand the range of information you're sharing and get you to share a lot more of it. (Comment on this story.)

For this to happen, the 1,400 Facebook employees in Palo Alto and around the world (Dublin, Sydney, Tokyo, etc.) work toward two goals. The first is expansion, something the company has gotten prodigiously good at. The site had 117 million unique visitors in the U.S. in March, and the company says some 70% of its users are in other countries. In cellular-connected Japan, the company is focusing on the mobile app. In cricket-crazed India, Facebook snared fans by helping the Indian Premier League build a fan page on Facebook's site. (Watch TIME's video "I Look Like Whom?")

There's a technical aspect too. The slightest fraction of a second in how long it takes to load a Facebook page can make the difference between someone's logging in again or not, so the company keeps shaving down milliseconds to make sure you stay. It also mobilized Facebook users to volunteer to help translate the site into 70 languages, from Afrikaans to Zulu, to make each moment on Facebook feel local.

The Aha! Moment
Facebook did not invent social networking, but the company has fine-tuned it into a science. When a newcomer logs in, the experience is designed to generate something Facebook calls the aha! moment. This is an observable emotional connection, gleaned by videotaping the expressions of test users navigating the site for the first time. My mom, a Facebook holdout whose friends finally persuaded her to join last summer, probably had her aha! moment within a few minutes of signing up. Facebook sprang into action. First it asked to look through her e-mail address book to quickly find fellow Facebook users she knew. Then it let her choose which of these people she wanted to start getting short status updates from: Details about what a long-lost friend from high school just cooked for dinner. Photos of a co-worker's new baby. Or of me carousing on a Friday night. (No need to lecture, Mom.)

Facebook has developed a formula for the precise number of aha! moments a user must have before he or she is hooked. Company officials won't say exactly what that magic number is, but everything about the site is geared to reach it as quickly as possible. And if you ever try to leave Facebook, you get what I like to call the aha! moment's nasty sibling, the oh-no! moment, when Facebook tries to guilt-trip you with pictures of your friends who, the site warns, will "miss you" if you deactivate your account. (See what users say about Facebook.)

So far, at least, the site has avoided the digital exoduses that beset its predecessors, MySpace and Friendster. This is partly because Facebook is so good at making itself indispensable. Losing Facebook hurts. In 2008 my original Facebook account was shut down because I had created multiple Dan Fletchers using variants of the same e-mail address, a Facebook no-no but an ingenious way to expand my power in the Mob Wars game on Facebook's site. When Facebook cracked down and gave me and my fictional mafia the kiss of death, I lost all my photos, all my messages and all my status updates from my senior year of high school through the first two years of college. I still miss those digital mementos, and it's both comforting and maddening to know they likely still exist somewhere, sealed off in Facebook's archives.

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Being excommunicated from Facebook today would be even more painful. For many people, it's a second home. Users share more than 25 billion pieces of information with Facebook each month. They're adding photos — perhaps the most intimate information Facebook collects — at a rate of nearly 1 billion unique images a week. These pics range from cherished Christmas mornings to nights of partying we, uh, struggle to remember. And we're posting pictures not just of ourselves but also of our friends, and naming, or tagging, them in captions embedded in the images. Not happy someone posted an unflattering shot of you from junior high? Unless the photo is obscene or otherwise violates the site's terms of use, the most you can do is untag your name so people will have a harder time finding the picture (and making fun of you).

With 48 billion unique images, Facebook houses the world's largest photo collection. All that sharing happens on the site. But in two giant leaps, the company has made it so that users can register their opinions on other sites too. That first happened in 2008, when the company released a platform called Facebook Connect. This allows your profile to follow you around the Internet from site to site, acting as a kind of passport for the Web. Want to post a comment about this article on TIME.com? Instead of having to register specifically with that site, Facebook users just have to click one button. This idea of a single sign-on — a profile that obviates the need for multiple user names and passwords — is something a lot of other companies have attempted. But Facebook had the critical mass to make it work. (Become a fan of TIME on Facebook.)

Targeting Your Likes
Zuckerberg unveiled the second big initiative, Open Graph, this spring. It's a nerdy name for something that's surprisingly simple: letting other websites place a Facebook Like button next to pieces of content. The idea is to let Facebook users flag the content from as many Web pages as possible. For example, if I'm psyched about Iron Man 2, I can click the Like button for that movie on IMDB, and the film will automatically be filed under Movies on my Facebook profile. I can set my privacy controls so that my friends can find out in one of three ways that this is a movie I like. They can go to IMDB, where my charming profile picture will display on the page. They can get a status update about my liking this movie. Or they can see it on my Facebook profile.

Facebook wants you to get into the habit of clicking the Like button anytime you see it next to a piece of content you enjoy. Less than a month after launching Open Graph — which made its debut with some 30 content partners, including TIME.com — Facebook is quickly approaching the point where it will process 100 million unique clicks of a Like button each day. (See "The Downside of Friends: Facebook's Hacking Problem.")

The company's goal with Open Graph is to give you ways to discover both new content and more common ground with the people you're friends with. That's the social benefit Zuckerberg sees, and it's shared by those in his employ. Sheryl Sandberg, Facebook's chief operating officer, is at her most enthusiastic when she's describing Peace.Facebook.com, part of the website that tracks the number of friendships made each day between members of groups that have historically disagreed, such as Israelis and Palestinians and Sunnis and Shi'ites. "We don't pretend Facebook's this profound all the time," Sandberg says. "But is it harder to shoot at someone who you've connected to personally? Yeah. Is it harder to hate when you've seen pictures of that person's kids? We think the answer is yes."

Helping bring about world peace would be nice, but Facebook is not a philanthropic organization. It's a business, and there's a tremendous business opportunity around Facebook's member data. And Sandberg knows it. She joined the company in 2008 after helping Google build its ad platform into a multibillion-dollar business. Much like Google, Facebook is free to users but makes a lot of money (some analysts estimate the privately held company will generate $1 billion in revenues in 2010) from its robust ad system. According to the Web-research firm comScore, Facebook flashed more than 176 billion banner ads at users in the first three months of this year — more than any other site. (See "Facebook Wants to Read Your Mind.")

The more updates Facebook gets you to share and the more preferences it entreats you to make public, the more data it's able to pool for advertisers. Google spearheaded targeted advertisements, but it knows what you're interested in only on the basis of what you query in its search engine and, if you have a Gmail account, what topics you're e-mailing about. Facebook is amassing a much more well-rounded picture. And having those Like buttons clicked 100 million times a day gives the company 100 million more data points to package and sell.

The result is that advertisers are able to target you on an even more granular level. For example, right now the ads popping up on my Facebook page are for Iron Man 2 games and no-fee apartments in New York City (I'm in a demographic that moves frequently); my mom is getting ads for in-store furniture sales (she's in a demographic that buys sofas).

This advertising platform is even more powerful now that the site can factor in your friends' preferences. If three of your friends click a Like button for, say, Domino's Pizza, you might soon find an ad on your Facebook page that has their names and a suggestion that maybe you should try Domino's too. Peer-pressure advertising! Sandberg and other Facebook execs understand the value of context in selling a product, and few contexts are more powerful than friendship. "Marketers have known this for a really long time. I'm much more likely to do something that's recommended by a friend," Sandberg says.

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As powerful as each piece of Facebook's strategy is, the company isn't forcing its users to drink the Kool-Aid. It's just serving up nice cold glasses, and we're gulping it down. The friends, the connections, the likes — those are all produced by us. Facebook is the ultimate enabler. It's enabling us to give it a cornucopia of information about ourselves. It's a brilliant model, and Facebook, through its skill at weaving the site into the fabric of modern life, has made it work better than anyone else.

What Voldemort Is to Harry Potter
Zuckerberg believes that most people want to share more about themselves online. He's almost paternalistic in describing the trend. "The way that people think about privacy is changing a bit," he says. "What people want isn't complete privacy. It isn't that they want secrecy. It's that they want control over what they share and what they don't." (See "Who Will Rule the New Internet?")

Unfortunately, Facebook has a shaky history of granting people that control. In November 2007, when the company tried to make its first foray into the broader Web, it rolled out Facebook Beacon, in which users were automatically signed up for a program that sent a notice to all their friends on Facebook if, say, they made a purchase on a third-party site, like movie tickets on Fandango. Initially, users couldn't opt out of the service altogether — they had to click No Thanks with each individual purchase. And, worse, investigations by security analysts found that even after users hit No Thanks, websites sent purchase details back to Facebook, which the company then deleted. Amid a torrent of complaints, Facebook quickly changed Beacon to be an opt-in system, and by December 2007, the company gave users the option of turning off Beacon completely. Ask Zuckerberg and other executives about the program now, and you'll notice that Beacon has become to Facebook what Voldemort is to Harry Potter's world — the thing that shall not be named.

Facebook isn't the only company to have made a serious social-networking infraction. In February, Google apologized after the rollout of its Twitteresque Buzz application briefly revealed whom its users e-mailed and chatted with most, a move that alarmed, among others, political dissidents and cheating spouses. But at Facebook, the Beacon debacle didn't stop the company from pushing to make more information public. This winter, the company changed its privacy controls and made certain profile details public, including a user's name, profile photo, status updates and any college or professional networks. During the transition, Zuckerberg's private photos were briefly visible to all, including several pictures in which he looks, shall we say, overserved. He quickly altered his settings. (See "25 Things I Didn't Want to Know About You on Facebook.")

In April, the site started giving third-party applications more access to user data. Apps like my beloved Mob Wars used to be allowed to keep your data for only 24 hours; now they can store your info indefinitely — unless you uninstall them. This spring, Facebook also launched something called Instant Personalization, which lets a few sites piggyback onto Facebook user data to create recommendation engines. Once again, as with Beacon, users were automatically enrolled.

With each set of changes to Facebook's evolving privacy policy, protest groups form and users spread warnings via status messages. In some cases, these outcries have been quite sizable. Zuckerberg points to 2006, when users protested the launch of Facebook's News Feed, a streaming compilation of your friends' status updates. Without much warning, tidbits that you used to have to seek out by going to an individual's profile page were suddenly being broadcast to everyone on that person's list of friends. "We only had 10 million users at the time, and 1 million were complaining," Zuckerberg says. "Now, to think that there wouldn't be a news feed is insane." He's right — protesting the existence of a news feed seems silly in hindsight; Twitter built its entire site around the news-feed concept. So give Zuckerberg some credit for prescience — and perseverance. "That's a big part of what we do, figuring out what the next things are that everyone wants to do and then bringing them along to get them there," he says. (See "Facebook Does an About-Face on Privacy.")

But corralling 500 million people is a lot harder than corralling 10 million. And some users are ready to pull the plug entirely. Searches for "how to delete Facebook" on Google have nearly doubled in volume since the start of this year.

The Web's Sketchy Big Brother
If Facebook wants to keep up the information revolution, then Zuckerberg needs to start talking more and make his case for an era of openness more transparently. Otherwise, Facebook will continue to be cast in the role of the Web's sketchy Big Brother, sucking up our identities into a massive Borg brain to slice, dice and categorize for advertisers.

But amid all the angst, don't forget that we actually like to share. Yes, Facebook is a moneymaking venture. But after you talk to the company's key people, it's tough to doubt that they truly believe that sharing information is better than keeping secrets, that the world will be a better place if you persuade (or perhaps push) people to be more open. "Even with all the progress that we've made, I think we're much closer to the beginning than the end of the trend," Zuckerberg says.

Want to stop that trend? The onus, as always, is on you to pull your information. Starve the beast dead. None of Facebook's vision, be it for fostering peace and harmony or for generating ad revenue, is possible without our feeding in our thoughts and preferences. "The way that people decide whether they want to use something or not is whether they like the product or not," Zuckerberg says. Facebook is hoping that we're hooked. As for me? Time to see if the ex-girlfriend has added new photos.

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