TOPICS > Economy

Could Facebook Get Squashed by a “Better Mousetrap?”

June 22, 2012 at 12:00 AM EDT
Part of his Making Sen$e of financial news series, economic correspondent Paul Solman speaks with author and longtime media blogger Rory O'Connor about social media security, privacy violations and what, if anything, could take Facebook down.

JEFFREY BROWN: And now to social media and personal privacy.

Facebook and other companies have been in the news recently. As analysts debate whether their profits justify their stock prices, still lingering in the background are concerns over privacy violations.

NewsHour economics correspondent Paul Solman looks at that part of the story. It’s part of his ongoing reporting Making Sense of financial news.

PAUL SOLMAN: It was one of biggest initial public stock offerings history, one of the most hyped, and one of the most disappointing. After the IPO, shares of the social networking giant Facebook swooned and are still well below the initial price.

But in his new book, “Friends, Followers and the Future,” filmmaker, author, and longtime media blogger Rory O’Connor argues that Facebook faces even bigger problems in the long run.

RORY O’CONNOR, author: I think it would be a mistake to focus on the day-to-day fluctuations of the stock market, if you will, because there’s really something much deeper and more structural that’s happening here.

And that’s what investors and the rest of us need to focus on.

PAUL SOLMAN: So what’s happening? I mean, I thought Facebook was the new Google, the new greatest company in America.

RORY O’CONNOR: Well, Facebook is the new Google, the new greatest company in America, but that doesn’t mean it’s going to stay that way anymore than, you know, Google was the new Microsoft, let’s not forget.

So these are tools, and if a better tool, if a better mousetrap comes along, if a better search engine appears tomorrow, we would all abandon Google. If a social network that didn’t abuse our privacy and could be trusted comes along, we will abandon Facebook.

PAUL SOLMAN: They invade our privacy how?

RORY O’CONNOR: Well, both Google and Facebook have repeatedly taken private information from their users and made it public for their own benefit. The most prominent example from Google was when they were creating their Google Buzz social network, the predecessor to Google+.

So, for example, I know a fellow, a guy named Morosoff, who dealt with a lot of dissidents in Europe, and they were on his e-mail list. He woke up one morning to find that that had been broadcast to the world without his consent, or even without his knowledge, thanks to Google.

PAUL SOLMAN: What’s Facebook do that’s broken trust with people?

RORY O’CONNOR: Well, you know, most immediately, we found out that Facebook was still, after you log off and leave Facebook, Facebook is still monitoring every Web site that you visit, and taking that data back to Facebook and keeping it and using it.

And that’s only the most recent in a long series of privacy violations. For example, the FTC has now got Facebook under a consent agreement where they have agreed not to violate user privacy in the future, to have independent third-party audits for decades. Nonetheless, Facebook is still engaged in the same behavior.

PAUL SOLMAN: But isn’t Facebook, in some sense, invulnerable, because it has so many hundreds of millions of people who are connecting with each other?

RORY O’CONNOR: Absolutely not.

Facebook, I think, is very vulnerable at this point. Facebook is facing exactly the same issues that we’re now seeing on the front pages with Google: privacy and antitrust.

PAUL SOLMAN: What could take Facebook down?

RORY O’CONNOR: Someone’s going to come along with a social network that, you know, technically works just about as good as Facebook, but doesn’t steal your information and use it for private gain.

For example, there is a new social network called Diaspora, which is, just to mention one. There’s another one. Every need — people are now seeing that there’s perhaps a business opportunity in going up against Facebook and say, hey, we’re the guys you can trust. We’re the guys who will work with you. We’re the guys that, if you give us information and we sell it, first of all, we will ask you for your consent and, hey, guess what? Maybe we will even give you a cut of the proceeds.

PAUL SOLMAN: But I’m sure lots of our viewers are like me and have not heard of Diaspora, and that there are hundreds of examples of competitors or would-be competitors that die on the vine every year.

RORY O’CONNOR: Yes, but I’m sure there are other new ones that your viewers have heard of.

Instagram, for example, which was just bought by Facebook, was a photo sharing network. So there are things that are being organized around different activities like photo sharing. There are things that are being organized around different groupings, smaller groupings. So, yes, there are hundreds of these that are being invented every year, and not all of them are going to stick around, but many of them are, and are — frankly been valued quite highly.

PAUL SOLMAN: Is the fact that the initial public offering of Facebook has been a disappointment suggest that the market had the same insight that your book has, that a company like this is actually vulnerable?

RORY O’CONNOR: I don’t think it does.

I think it probably was for technical reasons. Maybe Morgan Stanley didn’t do a good job in the initial pricing or whatever. Now, let’s not forget — look back at a company called Amazon. It had an initial public offering, and, like Facebook, the shares went down subsequently.

Well, in time, they went up quite a bit. I have seen no recognition by the marketplace thus far, frankly, of these very large and structural issues that I’m referring to, such as privacy and antitrust. And I think that, if there’s any market failure here, it’s not in the IPO, but it’s not looking deeper and looking towards the future.

PAUL SOLMAN: Rory O’Connor, thanks very much.

RORY O’CONNOR: It’s a pleasure to be here.