Facebook's 'beacon' feature that spreads word of purchases or even actions on commerical websites to one's friends is in retreat, with major advertisers bailing out. Meanwhile, a security analyst finds Facebook sending usage data back to the mother ship regardless of opt-out actions, and even when the Facebook windows have been closed. (A snarky, funny non-technical take here.)
Now Facebook may be clean as the driven snow, and throwing all those bits on the floor when they arrive. This problematic implementation may be exacerbating their issues by given the appearance of deception, but it's not the core of the problem.
When Facebook turned down the big bucks to remain an independent company, their investors made a bet that it would be worth more down the road. Given that the company's technology is not the core of its value, that bet had to be on extracting more value from Facebook's users (valued at about $300 the head by Yahoo's offer.) Further, the key to Facebook's value is not the users alone, but the value resident in the relationships among them, the core thesis of investing in social network sites.
Not long thereafter, Facebook announced that it was in the platform business. Again, while its technology is useful, no one would have taken this seriously except for Facebook's base of users and their relationships. Facebook committed to finding a way to reuse those relationships: being a platform is as much about having reusable assets as it is about REST and APIs. It also - without acknowledging it - took on an imperative to do so quickly. In spite of hype about the permanence of social networks, their user bases often turn out to be segmented by demographic cohort - as witness today's annnouncement of the sale of LiveJournal, a fallen star that had gotten its start on the current Facebook age bracket. Some payoff was necessary before Facebook could risk being knocked off its perch.
Overloading rather ill-defined friendship relationships with other meanings, commercial promotion in this case, was almost an imperative in the situation. The particular method chosen was also very likely to offend user's sense of privacy by ignoring how real people segment up their social worlds, and at the same time generating apparent intrusions (social beacons) and perhap arousing the suspicion that one's financial doings in the form of purchases were being tracked. While some seem to believe that the Facebook user base has moved beyond these concerns, the reaction from real people - not just busy-body NGOs - seems to indicate that Facebook has scored a privacy invasion trifecta.
While this may seen to hinge on a faulty concept and implementation of beacons, it may just as well be the case that Facebook is looking at an inherent problem: Trying to convert social relationships into reusable assets can't be done in a scalable fashion without destroying the trust of the users. If so, Facebook could go down in Valley annals as the next PointCast.
Update 12/5/07: Zuckerberg climbs down. That may ameliorat the current flap. It leaves the questions about ability to derive value from social links outstanding.