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Orwell, Privacy and Internet Regulation

|Includes: Internet HOLDRs (HHH)

Big Brother. Facebook. One and the same? Or completely different?

Facebook, as Time Magazine recently put it, is now the third largest country on earth, and, like Orwell's Oceania, transcontinental, omnipresent and amorphous. Some might argue that the more family and friends use it, the more involuntary it becomes.

Still, it's a commercial entity. To survive, it needs to generate profits that provide a sufficient return to its owners.

Government as the gatekeeper
Broadband Internet did not become ubiquitous until after 2000. The mobile, social networking Internet we use today has only existed for about the time it takes a person to complete high school. (Okay, an eternity for a young person, but a blink of the eye for the rest of us.)

And yet, because the urge to regulate is endemic, many believe it cannot exist without oversight.

Whether Facebook's walled-garden or Google's open platform, different business models are competing for the consumer's wallet. Not unlike the bricks and mortar world, these and other models will succeed and fail based on how well they incorporate customer knowledge.

Most consumers, as we know, are more than happy to share extremely private information in both the real and virtual worlds, which begs the question what exactly is private information?

One regulatory strategy is to view the Internet as a communication—not an information—service. Recently, the FCC, in the name of neutrality, issued an order that makes it the traffic cop of Internet access providers: a move that the new Congress, if not the courts, will surely test soon enough.

An article we recently published at Lyceum points out that the Internet is still a massive information service.* Think of all those YouTube videos and digital photos we so willingly share.

At least with Facebook we have some sense of what we're dealing with. Its users have revolted on privacy issues before, and the company has responded.

Government as the Internet gatekeeper is an altogether different proposition. Accountability—the Fannie Mae and Freddie Mac fiascoes demonstrated—does not occur in the same way it does in the private sector. Transparency might as well be a brick wall.

Big Brother would indeed be watching.

* Read "Privacy and Internet Regulation" in Perspectives here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.