Facebook’s privacy-busting referral scheme called Beacon is to be modified. If you buy something elsewhere on the web, this information is piped back into your Facebook profile, so your social network can see what you’ve just bought.

Facebook already offered something similar, but with an opt-in model. This opted everyone in by default. People don’t mind telling friends they’ve gone to see Led Zepp – they don’t necessarily want them to see they’ve just bought a blow-up doll.

Who would have guessed?

It’s damaged Facebook and participating advertisers far more than anyone has realized. Facebook’s notoriously weaselly approach to privacy was well in evident, even as it begun to roll out the “fix”.

“Facebook already has made changes to ensure that no information is shared unless a user receives notifications … ” the company explained. Note, not “permissions”, but “notifications”.

In the reader comments, Darren Coleman asks,

“I can’t really see how Facebook can make any money outside of the traditional model of invasive banner ads and Adwords. As sites go it’s a victim of its own success – you can’t monetise the userbase because they’d sooner just jump ship to the next Web 2.0 darling, and if you’re seen to be doing anything that could be construed as towing the corporate line (e.g. ads, tracking, etc) then suddenly you’re no longer the plucky young upstart website – you’re the corporate mouthpiece bought and paid for by the kind of people that talk earnestly about monetisation, incentivising, growing brands, etc. Urgh.”

“It’s the ultimate self-defeating paradigm.”

Good point – is that it, then? Well, not quite, because there are three ways of making money here, and Facebook is trying them all.

Mark “I’m the CEO … bitch” Zuckenberg called the referral program the “holy grail” of advertising when he announced it, and it remains a pipe dream.

The other two programs are safer bets: giving advertisers even more slightly accurate demographic information is sure to be welcomed: advertisers currently get nothing at all.

And getting a cut of transactions through Facebook remains an obvious strategy. As I pointed out at the time, however, this may be smaller than many people suppose. A store that shares the transaction revenue with Facebook is only going to be prepared to do so as long as it considers Facebook a part of that transaction. Is Amazon going to be prepared to pay every referrer for a transaction? You can bet not.

Facebook’s Beacon experience simply demonstrates that it’s been too clever by half: thinking it can do “permission marketing” without your permission.

And the company’s impatience and greed also explain why it faces a long drawn out battle with regulators in Europe. Like a Roach Motel, you can join Facebook – but you’ll never leave.

On the face of it, it looked like Web 2.0 had found its “Long Boom” moment. Facebook has yet to turn a profit, so Zuckerberg hardly seems in a position to advise other people how to make money – let alone place himself in a pantheon of historic business greats. In Web 2.0-land, merely “being there” is a substitute for having “made it”.

But then Zuckerberg is no stranger to bluster. This, notoriously, was the 22 year-old who had “I’m CEO…bitch” on his business card.

Behind the calculated bluster were a collection of ideas perhaps equally designed to distract the attention (no pun intended).

Of the three ideas Zuckerberg outlined, one in particular provoked horror and ridicule. It was to turn Facebook users, accustomed to its clean and spare UI, into human billboards. Advertisers could build presences in Facebook – at the moment, you must be a person – giving users the opportunity to “affiliate” with them.

“Users can become a fan of a business and can share information about that business with their friends and act as a trusted referral,” is how the company described it.

“What do the users get in return?” asked the IT commentator Nick Carr. “An animated Sprite Sips character to interact with.”

But Nick is forgetting that this cuts both ways – it isn’t a static picture at all.

Take the example of Stella Artois, which was once a “premium” lager brand owned by brewing giant InBev. In recent years this has acquired the notorious nickname “wife-beater”. This is now so pervasive, that lawyers defending their clients on assault charges refer to the “Stella” defence. Sales fell 10 per cent last year – and it isn’t quite so “premium” any more.

An affiliation is not an endorsement – yet Facebook collects either way. Would Stella’s fall have been accelerated by Facebook affiliation? Almost certainly, for on the web, jeering is the background noise. Only the most delusional marketing person thinks that their brand is in any way enhanced by proximity to the mob – brand advertising is all about keeping a distance. A corporate reputation is like a party frock – it crumples easily.

So shrewder advertising spenders will quickly realize the dangers in such 2.0-style “interactive” engagement and how phoney “conversations” with customers really are – and wisely gravitate towards traditional methods, such as plain ol’ display ads.

Nevertheless, and here’s the rub, they still want to have better, more targeted advertising. And even the slightest improvement helps.

Facebook’s future is much more down to who it lets into the club, rather than anything we heard this week.
Don’t be bluffed by bluster

The picture is far more nuanced than a simple analysis permits.

Because Facebook has wrapped up pretty much every internet application protocol ever invented under its umbrella, it’s the portal the old dotcom portals wished they would be. [MySpace gave us the first hint of this shift two years ago, when we observed that users rarely left MySpace - using it for everything except IM.]

For Facebook today, most of its value is as an email replacement – which represents the balkanization of the internet, with people only talking to people they already know. This is socially dismal, but again, good for advertisers. We’ve also seen a successful example of transactional revenue in the Facebook application iLike, which allows you to buy concert tickets. Others will find a way to persuade the in-Facebook brethren to part with their money.

So it’s worth remembering that there are many businesses within Facebook, and we’re barely at the nebula stage: the star is still forming.

This week reaction to Facebook’s announcement fell into two camps. The cynics saw it as confirmation that Web 2.0 companies were only ever out to screw their users as quickly as possible. The technology utopians appeared shocked – shocked! – that Facebook wanted to monetize its user base at all.

The truth is somewhere in between. Facebook may be far cleverer than we’ve been told this week.