Facebook Settles Class Action over Ad Program

Facebook, the popular online social network, has settled a year-old class-action lawsuit over its alleged failure to provide sufficient information and privacy controls to users with regard to its ill-fated ad program, Beacon, which shared user information on third-party partner sites in Facebook news feeds.

As part of the settlement, Facebook has agreed to pay $9.5 million to set up an independent foundation to “fund projects and initiatives that promote the cause of online privacy, safety, and security.” However, the plaintiffs’ lawyers can potentially lay claim to up to a third of the settlement monies. Facebook has also agreed to shutter the few remaining vestiges of Beacon, which debuted about two years ago but failed to take hold after an onslaught of negative press.

“We look forward to the creation of the foundation and its work to educate Internet users on how best to control their privacy; engage in safe social-networking practices; and generally, enjoy themselves more online by having knowledge that gives them a greater sense of control,” a statement from Facebook representative Barry Schnitt read. “We fully expect the foundation to team with other leading online-safety and privacy experts and organizations that have been working diligently in these fields.”

In response to the early negative reaction, Facebook modified Beacon to allow more user control. It was too late to reverse the initial bad press. Most existing partners reneged and few others signed on. Surprisingly, at the time of the settlement, a “small number of customers” were still using Beacon, and will be transitioned out.

Ultimately, Facebook came up with a winning substitute for Beacon called Facebook Connect, the universal login standard that shares third-party activity on members’ profiles. The privacy controls on Connect are clearer and more robust. It’s also been marketed in a more palatable form – as a tool for members rather than an ad platform. It’s free for third-party sites to implement, and with only a few exceptions, sites working with Facebook Connect code it in through the social network’s application programming interface, rather than through a formal agreement. Offering Facebook users the opportunity to register and log in to other sites without separate usernames and passwords also provides convenience and security, since some users may feel more secure clicking on a “Connect with Facebook” button than registering for an account with a new service.

“We learned a great deal from the Beacon experience,” the Facebook statement said. “For one, it underscored how critical it is to provide extensive user control over how information is shared. We also learned how to effectively communicate changes that we make to the user experience. The introduction of Facebook Connect – a product that gives users significant control over how they extend their Facebook identity on the Web and share experiences back to friends on Facebook – is an example of this.”

Why it matters: Facebook’s Beacon program was a major stumble for the social network, which did not recognize how much its users valued their privacy. Facebook learned from its mistake and has produced a new tool – Facebook Connect – that gives users more control while serving a function similar to Beacon.