Facebook’s sometime-in-the-future IPO is one of the most anticipated stock offerings of all time, and with good reason: in a short time the company has become the de facto standard social network with over 500 million users and a private-company market capitalization of somewhere over $20 billion.  You can even bet on their IPO date on Bodog if you’d like.

But I think that Facebook going public is a bad idea, and here’s why:  a public Facebook will be under pressure to continually increase earnings, putting it in an escalating conflict of interest with its user base.

You could argue that every relationship between a business and customer is an inherent conflict of interest, because the business wants the customer to pay as much as they can and the customer wants to pay as little as they can.  While that is true, in a typical business-consumer relationship both knowingly acting like sellers and buyers.  So it is not so much a conflict of interest as it is a negotiation or evaluation of cost versus value, leading to a buy or don’t buy decision.

In Facebook’s case, I’m not using it as a “buyer”.  I’m using it to connect and share information with my friends.  And regardless of what Mark Zuckerberg or others think about our society’s lack of interest in privacy, we do care about it.  And if the main way that Facebook can grow is to monetize more and more of our private data (to for example target more direct ads based on our birthdays, or likes, or our friends, or our status updates), then that is a conflict of interest.

Consider the effect of some other conflicts of interest:

• Wireless carriers like AT&T want to limit our data consumption, even as hardware provides like Apple want us to use more and more data.  That’s why we (and Apple) hate AT&T: they want us to pay for bandwidth, but not to use it.  They operate like a health club that hopes to attract a lot of people to sign-up for an annual membership that end up never working out… except in AT&T’s case, not only did everyone come every day to workout, but instead of working out for just 30 minutes per day everyone wants to workout all day long, and there aren’t enough machines to go around.
• Politicians are responsible for governing, but their decision making is influenced by their need to get re-elected (through lobbyists, party loyalty, or bowing the most vocal opinions).  That is why (a lot of) people hate politicians, and why the hard decisions in areas like Social Security can never get done.
• The rating agencies that rate the quality of Wall Street’s financial products are paid for those ratings by… the same Wall Street firms that they are rating.  How hard of a stance do they end up taking in their ratings?  We know where that conflict got us.

Why doesn’t Google’s advertising have the same problem?  Because when I’m searching for something I either (1) know what I’m looking for, or (2) I’m browsing.  Google’s algorithm provides accurate information for #1 (through the left side list of search results), and then they monetize #2 (through right side and top-of-screen paid ads).  There is no conflict of interest here.

It is becoming more clear every day that Facebook is going to be ground zero for the battle over privacy in the next decade.  A publicly traded Facebook will make that battle even uglier.

Image from Flickr