Facebook IPO: Privacy Laws a ‘Risk Factor’

By Jennifer Valentino-DeVries

Facebook has taken some lumps in the past few months when it comes to user privacy – and from the looks of its IPO documents, the company expects scrutiny of its privacy practices to continue. In its long-awaited filing, the social-networking giant calls potential privacy laws and changing attitudes about privacy a potential “risk factor” for its business.

And in a sign of how important privacy has become for the company, Facebook takes pains to mention how privacy settings fit into its products. It mentions “privacy” 35 times in its filing and even lists its “privacy and sharing settings” as one of the ways the company creates value for people.

To be sure, the risk from privacy missteps is pretty far down the list when compared with, say, “competition” and “loss of advertisers.” And no IPO filing is really about potential pitfalls, especially when the company’s 2011 profit was $1 billion, up 65% from the year before.

But the risk for Facebook is a real one; the company is always going to face tensions over privacy as long as its business relies on the collection of detailed data about people.

Late last year, the company settled a case with the Federal Trade Commission that means it will have to have privacy audits for the next 20 years and get user consent for certain privacy changes from now on. The company says in its filing that “we expect to continue to be subject” to investigations and settlements in the future. The company also warns investors about “unfavorable media coverage” of its privacy practices.

Another privacy risk for Facebook? It’s possible that the company could do something that infuriates readers so much that they stop using the service.

Considering the fact that Facebook has 845 million users, that doesn’t seem like much of a concern right now. But Facebook says it isn’t taking chances: It has “a dedicated team of privacy professionals who are involved in new product and feature development from design through launch; ongoing review and monitoring of the way data is handled by existing features and apps; and rigorous data security practices.”

In the end, if people keep seeing headline after headline about privacy concerns and Facebook, they might come to associate the brand with these problems rather than happier things such as growing virtual crops and “liking” photos of drunk people. And that would be bad for the company and its investors.

Readers, what do you think? Are privacy problems a big risk factor for Facebook?