It may be time to start treating the entire web as one interconnected data collection form. Innocuous information you share online can be used to deduce your movie rental habits, political affiliation, and even your social security number.

Consider this:

•    Netflix inadvertently revealed the identities of some of their subscribers even though they removed personally identifying information from their publically available database. Two University of Texas researchers were able to match Netflix subscribers’ to their reviews of vulnerable movies on sites like IMDB.

•    Another discovery out of the University of Texas, this time involving an assistant professor and his student, was that peoples’ political affiliations can be inferred from social networks. Group membership, music preference, and friendship connections were particularly indicative of political affiliation. The dataset for this experiment was 167,000 online profiles and 3 million ‘friends’ in the Dallas-Fort Worth area.

•    Even those who are unconcerned that others can see their movie rental records, or know their political persuasion, would be upset if their social security numbers were uncovered. Another duo of researchers, in this case from Carnegie Mellon University, were able to destabilize the Social Security numbers of 8.5% of US citizens born from 1989 to 2003 based on publically available data including social network profiles.

As Maneesha Mithal of the Federal Trade Commission’s privacy division stated in The New York Times, “Technology has rendered the conventional definition of personally identifiable information obsolete…You can find out who an individual is without it.”

So do we need to protect the next generation of Internet contributors, those born since 1995 referred to as Gen Z? In The New World of Wireless: How to Compete in the 4G Revolution Scott Snyder writes that Gen Z are the most likely generation to accept reduced privacy in order to participate in the “immersive, ‘user-centric’ wireless experiences” delivered by 4G mobiles. Encouragingly, this generation is demonstrating an ability to engage and minimize their public exposure. Regulatory body Ofcom’s media literacy audit found that a full quarter of 8-12 year old UK citizens have social networking profiles on Facebook, MySpace, or Bebo. A vast majority of this active quarter, 83%, have set their privacy settings to only allow their friends to see their profiles.

I think Gen Z will be just fine; we don’t need to instill a mistrust of academics that travel in twos or teach them about the interrelated nature of the Internet. Let’s concentrate on ourselves and realize that by placing our first name on one site and our last name on another site we’re effectively placing our full name in the same place.

If you’ve logged in to Facebook since 9 December, you’ll have been introduced to the new Facebook privacy settings. As with Beacon, these new settings have outraged Facebook users and rights groups. Again, Facebook has relented, retracting the all (Google-wide) or nothing (not even your Facebook friends can see) visibility of friends lists.

The Facebook blog is a hotbed for complaints. As Peter ‘mos Undef’ Mann observed, since the new settings were rolled out, Facebook users have had to navigate six distinct versions of what aspects of our friends lists we can protect and how to set those restrictions.

Well Facebook, you fooled me once with Beacon, and now you’ve fooled me twice with your new privacy settings. Please don’t fool me again – make the profit you’re entitled to, just don’t invade my privacy or my friends’ privacy to do so.

From using the MyWebDNA extension, you know that you don’t have to sacrifice privacy for personalization. Unfortunately Facebook didn’t know this when they introduced Beacon.

Beacon, which shared sensitive data across users’ Facebook profiles, has been a disaster from the start, causing outrage over incidents like broadcasting the price paid for an engagement ring — before the ring had been presented. In response to the widespread backlash, (the “How dare you betray me?” response we’ve detailed in previous posts) Facebook has had to backpedal dramatically. First they switched from case-by-case opt-out to permanent opt-out, then to opt-in only, and finally they canceled the program altogether.

Facebook still doesn’t get it; they don’t have to invade your privacy to deliver ads which are meant for you. Until Facebook learns that they can give you what you want without tracking you, they are under-serving you.

Remember the first time you saw Barack Obama?

If you’re like most Americans, it was roughly four and a half years ago at the Democratic National Convention. I refer you now to one line in particular of that historic speech:

“We worship an awesome God in the Blue States, and we don’t like federal agents poking around in our libraries in the Red States.”

There is a reason the confidentiality of library records is sacrosanct: it is because the use of them for government intelligence virtually guarantees an imposition on civil liberties.

When we think about going to the library and checking out a John Grisham or a Stephen King, it’s hard to imagine what all the fuss is about. But imagine instead that you’re interested in religion and you check out a Bible or a religious reference book. Now imagine that instead of a Bible, you check out the Koran.

There are millions of versions of this scenario. You love planes and you check out a book to see how jetliners work — now imagine you’re of Middle Eastern descent. You’re fascinated with serial killers. Your friend David recommends Devil in the White City. You’re a student of human behavior and pick up a copy of The Lucifer Effect. Any one of these situations could imply suspicious activity — and, in more than 99% of cases, that suspicion would be dead wrong.

In the book Free Expression and Censorship In America, Herbert Foerstel describes the FBI’s attempts to monitor communist activity through the library system:

At [the University of Maryland, College Park], the agents asked librarians to report on anyone with a “foreign-sounding name or foreign accent” who used the libraries. Such a characterization would fit the majority of students and faculty on most American campuses, yet librarians were asked to monitor reference questions and on-line literature searches, including searches of [the National Technical Information Service], in order to establish the subject interests of these suspicious foreigners. All of this surveillance was conducted despite the fact that the UMCP libraries contained no classified materials, and their collections were presumably open to anyone. When the university complained about the surveillance, an FBI representative claimed that the libraries should feel no obligation to protect the access and privacy rights of noncitizens.

This backstory is why I was glad to see that a court is allowing a lawsuit against Blockbuster to proceed. The lawsuit is backlash from Blockbuster’s participation in Facebook’s ill-conceived Beacon program, which shared user purchase activity across the social network.

Just like libraries, it may seem that the potential harm from this program is minimal. You rent a copy of Wild Things, and the next thing you know your out-of-town girlfriend spots it on your News Feed and you’re having to explain yourself. But just like library books, movies can be an indication of who we are. Unfortunately, they are symptoms that point in a million different directions — symptoms that carry with them a potential for misinterpretation as tempting as a serpent’s apple.

We are eternally trying to find the right balance between freedom and security. Thankfully, books and other media coexist with speech firmly on the ‘freedom’ side of the line. Let’s keep it that way.

What do you think?

Summary: In this post, I cover two monetization options that have been suggested for Facebook, one from Bob Garfield at Advertising Age and one from Adam at Seer Interactive.

I was gratified to read two pieces today that actually proffered feasible ideas for how Facebook can live up to its own hype.

The first, Your Data with Destiny by Advertising Age’s Bob Garfield, is long—and worth it. En route to his suggestion to Zuckerberg, Garfield travels through the decline of traditional media and how the advertising value proposition has transitioned:

• away from exchanging attention to ad messages in return for access to free or subsidized media
• towards exchanging consumer data in return for entertainment, information, discount or utility.

Of course, the new marketing paradigm doesn’t stop at data provision. Mining and analyzing the data, and using it to extrapolate a consumer’s likes and dislikes—that’s where the future is. More specifically, it’s in finding out the true indicators of purchase intent, because they sure aren’t obvious:

In 2006 Tacoda did a project for Panasonic in which it scrutinized the online behavior of millions of internet users — not a sample of 1,200 subjects to project a result against the whole population within a statistical margin of error; this was actual millions. Then it broke down that population’s surfing behavior according to 400-some criteria: media choices, last site visited, search terms, etc. It then ranked all of those behaviors according to correlation with flat-screen-TV purchase.

In that list, “shopping online for flat-panel TVs” ranked 22nd — 18 places below “consumed ‘Miami travel’ content.” Miami travel?

“Not Chicago travel,” Morgan says. “Not Europe travel. Not business travel. Don’t ask me why. But here’s the incredible thing: No. 1 — and significantly above the others — was people looking at military content. It made no sense. Then I talked to a friend of mine who had been an officer in the first Iraq war. I said, ‘What’s going on?’ He said, ‘That’s easy. The kids in the military are huge video-gamers. They get big, fat signing bonuses, and their housing is free. They don’t need cars. So they buy big TVs.’”

Garfield’s extensive exploration of the history and progress of marketing (and there’s a lot more in said exploration, including a trip to Israel) ultimately led to his plea to Zuckerberg:

Dude, blessed as you are with the megaphenomenon called Facebook, why are you just another popular utility in search of a business model? Could it be that you’re fixated on the notion that your revenue must come from typical advertising? Haven’t we agreed that advertising is problematic, because users are suspicious of it, resent it and employ every means to avoid it? Yes, we have. Yet the same people 1) love goods and services; 2) crave information; and 3) are so fabulously self-involved that they display every last detail about themselves, their tastes, their preferences, their favorites, their hobbies, their embarrassing drunken photos, their damn near everything right on your site.

So why in the world do you not have a big honking box on the bottom of every Facebook page titled “What You’ll Like” or “YouStuff” or “The Mirror” with a category-by-category selection of books, music, films, videos, news articles, websites, tennis gear, shoes, power tools, specialty foods, flea and tick protection, you name it?

Not advertising. Capitalizing on the unlimited collaborative filtering made possible by Facebook’s oceans of data. I like it.

The other post, Facebook is Stealing Your Hard-Earned Rankings by Adam at Seer Interactive, is along similar lines: FB has the opportunity to become the Web’s ultimate affiliate marketer, thanks to its amazing progression through the SERP ranks:

Searches for Victoria?s Secret, Nike Shoes, Vodka, and Coldplay bring back Facebook as the 28th, 30th, 51st, and 28th result respectively. While ankings 30th isn?t impressive, the fact remains that Facebook isn?t trying and they were also not ranking AT ALL a few days ago. It?s hard to know when Google started indexing because these weren?t on anyone?s radar at position #452, but being at #28 definitely raises a brow to how far these could move.

Savvy Adam spots the business opportunity:

A few businesses have been able to capitalize like Rhapsody, iTunes and Amazon. They are taking advantage of iLike pages that are beginning to show up (System of a Down ranks 53) by having favorite songs downloadable through the band homepage… So if you?re able to download songs, buy shoes, and purchase lingerie from links on these pages, what is stopping Facebook from becoming the largest affiliate marketer on the web?

Both of these articles have something in common, and it’s something that I’ve been seeing for some time as core to future success on the Web. If your offering doesn’t work in with what your customer is already doing, they will resent you. If your offering enhances what your customer is already doing, they will love you. This is why text ads work better on Google than anywhere else—because they enhance what the customer is already doing.

What is your customer doing? How can your product or service enhance it?

From the consumer perspective: They need to become functional at a faster rate than people get bored with them.

From the business perspective: They need to become boring at a faster rate than they become functional.

(The above is reprinted from a comment I left on Read/Write Web.)

I know, Facebook hasn’t become boring yet: average time spent on the site is up, although it’s flattening, at least in the UK.

Nonetheless, Web offerings follow a predictable pattern. At first, they are fun and cool and new and interesting, but nothing can be new forever. Ipso facto, for a site to have longevity, the attraction must morph to something other than pure novelty.

Take email. Remember when getting an email was cause for boasting? It was a while ago, to be sure. The reason we’re all still using email is that its utility increased at least as quickly as our fascination with it waned. Same with Google.

Neat for neat’s sake doesn’t last?but that doesn’t mean it can’t be supplanted by useful.

When I first signed up to Facebook, it was interesting just to find old friends and watch the connections grow. Now I use it mostly to play Scrabulous. What about you? How has your Facebook usage evolved?