Facebook Beacon, currently in the process of going down in flames, is a classic case of overreaching. So much has been written about what’s wrong with Beacon — blatant privacy violation, lack of blanket opt-out, failure to make it opt-in, gathering data from non-Facebook users — but I haven’t seen much about WHY they got it so wrong. (Except for Umair, of course, who called Facebook evil back when everyone was still slobbering over them.)

The reason why Facebook got it so wrong with Beacon is actually much more interesting and important to the evolution of media, advertising, and technology than the reason why Beacon is imploding.

Facebook overreached because it’s acting like a traditional media company with monopoly control of its channel.

Remember (if you can) the days before the web, when every medium — TV, radio, magazines, and newspapers — were filled with ads. Everybody always said they didn’t like advertising, yet that didn’t stop people from consuming these traditional media in massive quantities and creating huge profit margins for large corporations.

How did these media companies get away with making so much money by running ads that in most cases people didn’t really like? Because they controlled the channel — and we had no choice.

Then the web came along and exploded these natural media monopolies — nobody controlled the channel — the “user” is now in control.

Except for Google, which developed two de facto new media monopolies:

  1. The gateway through which all other online media are accessed, i.e. search
  2. An ad network (AdSense) that became the most effective way for small, independent publishers to monetize content — i.e. they monopolized the monetization, not the channel

So what does this have to do with poor Facebook?

Facebook’s user news feed, which are published to each of their friends, began to look like the next monopoly in new media. Want to find out what’s going on with your friends, who are all on Facebook — you HAVE TO go through Facebook. Just like you had to subscribe to the local newspaper if you wanted to get news in the morning.

The problem is that Facebook isn’t really a monopoly medium — it just has high switching costs, i.e. it’s a pain to get all of your friends to switch to another social network. But you CAN do it. In traditional media, natural monopolies like the local newspaper meant there simply were no other options.

But on the web, there are always other options. Google search isn’t really a natural monopoly either — Google has just managed to maintain the user perception that it’s better.

High switching costs and high brand equity are not the same as natural monopolies.

But Facebook acted as if it had a real monopoly — it treated its users, to user Umair’s term, like “brainless meat for the grinder” — kind of like TV networks did when they force fed us 3-4 for minutes of mind-numbing commercials.

Facebook figured that users would have no choice but to accept Beacon — but they forgot that high switching costs are not a monopoly. And when the backlash started, they came crashing back to reality.

They realized that if their users caught wind of all the negative media coverage about privacy violations, and started to look carefully at what Beacon was actually doing, they might get so annoyed that….they might actually leave.

Sure you could change TV channels, but those annoying commercials would crop up again soon enough. You were stuck in the land of 30-second-spot monetized content.

But not so with social networks — there are hundreds of online social networks that aren’t being driven to extremes by the pressure of a $15 billion valuation, who won’t (at least not yet) try to monetize your every action without your permission.

Already, people like Dave Winer, Doc Searls, and others are trying to bust Facebook’s non-monopoly by advocating for social networking data portability (although the advocacy isn’t limited to social networking data) — this movement hasn’t hit mainstream users yet, but it may only be a matter of time before it is in fact easy to switch social networks, because you’ll still be able to connect with friends on the old network.

The other key ingredient in this over-reach was technology — the worst TV could ever do to us was subject us to a bad commercial. But TV couldn’t violate our privacy, it couldn’t buy and sell our private data — because it wasn’t technically possible.

But in digital media, anything is possible.

So Facebook got caught in the perfect storm of believing it had a monopoly — when it didn’t — and having the unprecedented technical capability to abuse the privilege that it didn’t actually have.

What’s the lesson then? It may well be that natural monopolies in media — which drove the media business for the last century — are dead. And without monopoly control, you don’t have license to exploit your audience, i.e. your users.

The biggest new media success story — Google — has to be hyper-vigilant to user experience, because it knows users will drop Google in a heartbeat. Which gets to the other reason why AdWords and AdSense have been so successful — it’s the closest to useful information that advertising has every gotten.

So if media monopolies dead, media companies are going to have to stay hyper-focused on being PERCEIVED as indispensable — because technically they no longer are. And they need to be extremely careful not to abuse the privilege that this perception conveys.