People have been complaining about Facebook and their privacy changes for what seems like an eternity. Recent developments have shown that this is all part of Facebook’s plan for world domination. Besides the various privacy policy changes, they have recently decided to share your profile with selected third party sites. Louis Gray posed an interesting question in that post:

This week’s tea leaf readings spell out plans for Facebook to share data from your personal profile with third party Web sites you visit, letting them tailor your Web content (and ads) just for you. The result, a much more relevant Web experience, would likely have big benefits for consumers, advertisers, and of course, Facebook, but it sets off the same alarm bells that rang with Beacon and other companies who have changed the rules in the middle of the game. The question is, can Facebook make the leap in such a way that it can still be trusted?

What Facebook is doing is changing things fairly slowly. There is a limited attention span on the internet, so making announcements in privacy changes every 3 to 6 months does not register as clearly to some people. This process is similar to slowly boiling a frog in a pot of water. So you barely notice the changes in heat, until it is far too late. To answer Louis’ question, yes Facebook will be trusted until people realize that they now own almost all of your internet actions.

Then, there is the “like” button for any page on the internet. So, not only is Facebook going to share your profile with some sites, they are now going to allow you to like any page without needing to be in Facebook itself. Obviously, the goal of this is to increase the interactions on Facebook, and to make it easier for you to do so. One of the limitations of many web applications meant for sharing posts and bookmarking is that they require you to take several steps in order to save the link and share it to your friends. Facebook is providing a “one-click simple” way to accomplish the same thing.

If this was not enough, TechCrunch makes it sound like there is a persistent toolbar coming as well:

Now we’ve heard from multiple sources about a third major product the company plans to unveil: a persistent Facebook toolbar that third-party sites can integrate that sounds a whole lot like the Meebo Bar.

This makes sense with the data sharing and like button ideas. If you really think about it, it almost sounds like the toolbar is the real product and the other ideas are just part of the main product.

There are some good reasons for this type of data sharing and persistent connections to Facebook:

  • Move some interaction outside of Facebook.com. To really make interaction increase, you need data from various sources. By opening up how information is shared, you will easily increase the activity on Facebook itself.
  • Move some applications off of Facebook servers. The viral nature of some of the Facebook applications means that there will be millions of people using an application. By allowing more open data sharing, applications like Farmville can have their own site and still have tight integration with Facebook. This takes some of the heat off of Facebook servers.
  • Make conversations easier about blogs and news. One of the problems with sharing a link on Facebook or even Twitter is that you need to go visit the source site and then return to Facebook to make a comment. Do not be surprised when Facebook allows commenting on a blog post without leaving the blog in the same style as Google Sidewiki.
  • Make Facebook the defacto infrastructure of the internet. Facebook is already the defacto standard social network. If Facebook allows likes and comments on any page, they can quickly become the standard of conversation. Imagine that Facebook follows through on the threats of an email client and location check-ins. What other basic internet interaction would they be missing?

Basically, Facebook saw how powerful the infrastructure concept was and decided to take advantage of it. Because they have over 400 million users, they can quickly become the defacto standard of many ideas. This is not about advertisements either. Advertisements are only a small piece of the pie.

All of these moves are related to data. Targeted advertisements require this information. However, being a data provider can be very lucrative as well. They can slice and dice the information collected in many different ways. Then they can sell all of this aggregate activity information to various companies that want to do their own targeted advertising. Facebook can easily be considered the largest focus group in the world.

The Facebook Economy

The one thing I have not talked about is Facebook’s currency. If they create a currency that can be used to purchase actual goods, the quickly become one of the largest financial powers in the world. Now, integrate this with the ideas proposed above, that you can interact with almost any page on the internet using Facebook. You would then be able to provide e-commerce on any site on the internet. If Facebook purely takes service fees on any transaction, they can make serious money. Let’s look at an example. Assuming that there are 400 million users on Facebook that make one e-commerce transaction per month, the average order value is $25 and they take only 2% of each transaction, we get the following:

400,000,000 x $25 x 2% = $200,000,000

That would be 200 million dollars per month, which can quickly be converted to 2.4 billion dollars per year. And, this is a somewhat conservative calculation. The number of Facebook users is rising quickly, the average ecommerce transaction is typically much higher than $25, and the typical fee is probably closer to 2.5%. If the number of users buying things is only 300 million, but we use an average order value of $50 and the 2.5% rate, we get 375 million dollars per month or 4.5 billion dollars per year. This also does not take into account the potential creation of stores on Facebook, or Facebook becoming a Paypal-like provider of payment services. To put this number into perspective, Ebay reported almost $9B last year and Google reported almost $24B.

So, how does that simple profile sharing sound now?

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