In May of this year, Representatives Edward Markley (D-MA) and Joe Barton (R-TX) introduced bipartisan legislation that would amend the long-standing Children’s Online Privacy Protection Act of 1998 (COPPA). This was followed shortly by Sen. John D. Rockefeller’s (D-WV) presentation of the Do Not Track Online Act of 2011. These “Do Not Track” pieces of legislation mark a ramp up in Congress’s efforts to strengthen privacy protection on the web, particularly as it influences young children. The impact for a myriad of social networks (Facebook) and search platforms (Google) could be significant, particularly as these companies seek to monetize the information they gather from users.

Consumer Reports announced in May that close to 7.5 million children aged 12 or younger are on Facebook. This is in direct confrontation with COPPA, which effectively prevents social networks from signing up kids and Facebook’s own policy that members be at least 13 years old to open an account. The potential benefits of Facebook accessing young members are huge – they may be more inclined to stick with the platform over time given early adoption; be more open to sharing information, as they have been conditioned to do so at an early age; and ads can be further personalized as you share and “like” more sites and products via the site. Much of this translates into more revenue for Facebook and further dominance as the premier social network.

Many parents who let their kids set-up Facebook accounts or other online profiles actively monitor their use. I have several teen and pre-teen cousins on Facebook and their parents are often their “friends” on the site and frequently check-in and limit their usage. While this is a good check, it still cannot fully protect against virus infections, identity theft and online bullying. Facebook has also taken important steps to protect young users of its site. It has actively engaged in measures to report bullying and is a partner in the Amber alert system. Still, these measures do not address the root of privacy issues that are concerning many parents and now Congress.

The Do Not Track Kids bill extends COPPA in several interesting ways. Most significantly, advertisers would be prohibited from targeting kids online. Data collection would also be limited and an “eraser button” would be created that would allow young users to eliminate damaging information online. Companies would have to explain up front the type of information they are collecting from young users and parental consent would have to be gathered in advance of this data collection.

As the 2012 election year approaches, it will be worth watching the progress of these bills through Congress, as well as the efforts of Facebook and other companies to influence the path of the legislation. Millions of advertising dollars are at stake, as well as the safety and privacy of countless young children.

The online world is probably the ultimate place for freedom. You can say pretty much what you want behind a wall of nicknames and/or anonymous posts. This power allowed people to freely expose their ideas and even organize big manifestations against dictatorships.

But some people take improper advantage of this freedom. A couple of months ago, Tom Macmaster, a 40-year-old American pretended to be a young Syrian lesbian blogger causing commotion and revolt. Everyday, thousands of people are powerless victims of cyber-bullying. At online market places, such as ebay and Airbnb, fraud is a major problem. Moreover, bad sellers can easily change usernames and start over again. Fake profiles at Facebook and Twitter cause a lot of troubles, as well.

The “real” world has a lot of control systems that mitigate the pitfalls of anonymity. For instance, newspapers are not required to disclosure the name of the article writers, but at least an offended person can easily go to court to seek for reparation on damages caused. Brick and mortar stores cannot quickly change location and names when their reputation is damaged by a fraudulent sale. Our society usually requires proper identification of the parts for most of the interaction that exist.

A “certified online ID” attesting the real name of a user could bring a lot of benefits. At online market places, the benefits are obvious: the risk of reputational bankruptcy would create great incentives to a better behavior, improving the quality of the services, and reducing the cost of transactions. At AirBnB, tenants and hosts would know the real name of each other increasing confidence and decreasing the importance of time-demanding reviews. The same concept is also applicable to ebay. In social networks, the benefits would also be enormous, not only avoiding fake profiles, but also allowing real profiles owners to get their account back in case of stolen passwords. A safer era of internet would begin. It would be a place where people would be more careful before offending or cheating others.

No, I do not think that the online world should migrate right away to a policy of strict identification. If this sort of identification was required since the beginning, the online world and specially the web 2.0 would be much smaller, or would not even exist. New users mobilitilization would have been much harder. However, one day internet usage will stop growing (or at least will grow only with population). Maybe on that day, the damage caused by this “excess” of freedom might overcome the benefits, and society might have to make a tough choice.

When I was 11 years old, the hottest social network in Internet was mIRC which could hardly be called a social network as it was nothing more than chat rooms. However, everyone in school was crazy about it; we’d spend hours online chatting. Back then, not many people had PCs at home in Turkey so the network within mIRC was limited to teens like me, going to similar schools, around same ages and from similar cities. However, as the PC and Internet penetration increased, mIRC started to get crowded. It wasn’t just me&my friends anymore; it was everyone including people I didn’t want to interact with. So I stopped using mIRC eventually and moved on to the next adventure: ICQ.

ICQ was my whole life between ages 14 and 17. It was more than just a chat room. Each person had a contact list so you didn’t have to interact with anyone you don’t want to, there were info cards which allowed you to display information about yourself and status messages to let everyone know what you are doing when you are online. I loved it but the word spread quickly and soon everyone started using ICQ and ICQ made it easier to communicate with people you don’t know. I first reduced the information that was displayed on my info card as some sort of a privacy measure but then stopped using it completely, it just didn’t work anymore.

The next chapter was MSN and it went through a very similar path with ICQ. I used it until my 20s quite extensively. I was excited about photo options and more comprehensive info cards but it couldn’t keep its authenticity and I watched it go down in the same time that Facebook started to rise.

My friends and I were all very enthusiastic about Facebook and its exclusive network. It didn’t allow anyone to sign up. You had to have a certain email domain like your college’s or employer’s and even then there were only a number of those that Facebook would accept. We all knew that this was a special network and we felt comfortable in sharing our thoughts, photos, special moments, likes&dislikes. However, Facebook started to get crowded too as it opened up to all email accounts. First we all increased our privacy settings, limiting our communication with the network. Then we started writing/logging in less frequently, decreasing our level of sharing with the network. Finally some of my friends (10% of my list in the last year) completely stopped using Facebook and moved on to Twitter where they have a closer circle.

Thinking of my own social network history makes me wonder “Why do people move on from one social network to another?” For many, the answer is simple: It’s a matter of popularity, things get old after a while and you are looking for the next fresh thing. I have a different theory: Social networks have an optimal size and value for customers decreases if the optimal size is exceeded, creating a reverse network effect.

For online businesses with strong network effects, generally accepted principle is as the number of people increases, more people would want to join and as the network grows more advertisers would want to get in resulting in more monetary value for the network owner. This phenomenon could be expressed with the graph in Exhibit (1).

The problem with this view though is that it only looks at the value creation from money-makers perspective, meaning advertisers & network owners. I believe consumers face a different curve shown in Exhibit (2). The value for consumers is very similar to value for money-makers until a certain point which I like to refer to as the optimal size for a social network. Once that point is reached, primary users stop using the network and start searching for an alternative, moving on. They are soon followed by the rest of their friends resulting in value destruction for all customers staying in who eventually follow the lead and exit.

So the more crucial question is “What is the optimal size of a social network?” I don’t have an answer for this one and I assume neither do social network sites. However, I strongly believe that long-term success in social networks depends on finding the optimal size and maintaining it. This could be achieved by closely monitoring customer activity especially of those who started using the network before anyone else and blocking new acquisitions when network approaches to its optimal size. It sounds quite easy but I believe it would indeed be very difficult for network owners to shift their strategy from “growth through new acquisitions” to “growth through no new acquisitions but current customer retention”. Revenues are probably just too sweet at that moment to see the long-term perspective and make the shift. Yet it is what matters.

There is so much to learn from ex-social networks and how they lost the battle. There is also a lot of value in analyzing customer perspective and behavioral patterns. I hope Facebook and eventually Twitter will take these into account or else I think we’ll all be moving on to the next adventure.

read more