7:00pm July 28, 2011

Privacy is No. 1 Regulatory Concern for Social Media Companies

Online Privacy — the biggest regulatory concern among social media companies

Linkedin Corp. (NYSE:LNKD) and Pandora Media Inc., (NYSE:P) recently beat social media giant Facebook to the punch by going public. Wall Street is enthusiastic about the two stock offerings for at least two reasons.

First, given the large number of subscribers to these services, analysts and investors have expectations that the value of these companies will increase (even though they have yet to show profit).

Second, how these companies perform will give investors some insight into how well Facebook and Twitter might perform as well.

Analysts use Facebook’s 700 million subscribers and its advertising business to estimate the company’s market value at around $70 billion.

A disproportionate number of black and Latino Americans use these social media platforms as consumers. For example, while 5 percent of whites online use Twitter, 13 percent of African Americans and 18 percent of Latino Americans use the micro-blogging service.

The disproportionate use of social media by minorities may present market opportunities for minority entrepreneurs. In addition to the challenges of raising capital for social media ventures, minorities in the social media space will have to address the regulatory issues faced by Linkedin, Pandora, Twitter, and other established social media companies.

A review of disclosure documents filed with the Securities and Exchange Commission shows that privacy is the No. 1 regulatory concern among social media companies.

Linkedin, for example, has concluded that the actual or perceived failure to comply with government regulations concerning the processing, storage, and use of personal data could hurt the company’s business.

As an Internet enterprise, a social media company must concern itself not only with U.S. laws but with the privacy laws of other nations as well. In addition, a social media company may have to address whether laws of one country conflict with those of another.

Minority social media outlets along with their larger corporate brethren will face increasing regulations as the public continues to raise concerns over their privacy.

For example, the Federal Trade Commission is in the process of reviewing rules intended to implement the Children Online Privacy Protection Act. According to the FTC, proposed changes will be announced over the next few months.

What can minority social media companies do now to mitigate the negative impacts of increased regulatory barriers? The FTC provides three major recommendations:

  • Ensure privacy protections are used in everyday business practices. This includes providing reasonable security for consumer data and for data collected for a specific business purpose.
  • Provide simple, streamlined choices to consumers about data practices. Consumers should be able to provide consent about the use of personal data at the point consumers provide this information.
  • Make data practices more transparent by improving privacy notices. Doing so allows consumers to compare data and privacy practices among various providers.

About the Author

Alton Drew
Alton Drew provides advocacy, legal and legislative analysis, and legislative monitoring services for not-for-profit associations and foundations with a particular emphasis on broadband adoption, spectrum, and local community development. Using various social media platforms, Mr. Drew amplifies messages for not-for-profit associations and foundations as part of their online media campaigns. Follow him on Twitter @altondrew; Facebook at http://www.facebook.com/alton.drew.5; or visit him at www.lawandpoliticsofbroadband.com or www.lawandpoliticsofcapital.com.



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