MetaData: Facebook Face-Off

The social network's members fret about how it will turn chitchat into cash.

The blogsphere erupted Sunday evening following an observation by the blog Consumerist that Facebook, the watercooler of this generation, recently tightened its policies for using the data that we all so freely share on its platform. The blog summed up the problem succinctly by asserting the new Facebook rules amount to: "We Can Do Anything We Want With Your Content. Forever."

Facebook founder Mark Zuckerberg fired back but sounded a bit wounded by the attack. "We wouldn't share your information in a way you wouldn't want," he said in a blog post on Facebook on Monday. "The trust you place in us as a safe place to share information is the most important part of what makes Facebook work."

Do people really think that their private information is sacred anywhere on the Web? You can read some detailed accounts of the specifics of this dustup here and here, among other places. Zuckerberg has gone to some lengths to say that Facebook's recent changes in its terms of service simply enable the service to let you save copies of your messages and photos and that of your friends. "We still have work to do to communicate more clearly about these issues," Zuckerberg wrote.

Even so, it's lunacy to think that Facebook isn't scrambling to figure out how to make use of all those comments about what movie you liked the most last week or your favorite brand of jeans. Yes, its traffic is spectacular: in 2008, a staggering 6.6 billion "friendships" were made on Facebook. If real life mimicked Web life, that would mean that just about everybody on the planet could have at least one friend.

But unless Facebook gets better turning chatter into cash, it won't have much of a business.

So far, Facebook has made limited headway in weaving advertising into its site. Small-time operations can pay a few cents per ad to deliver their message to people with a certain set of demographics. But earning pennies for ads isn't a passport to a great business.

If Facebook really wants to collect serious money for sharing its "friends" with the highest bidder, that could mean giving up some of the innocent, playful gestalt of the site and yielding to advertisers' demands for a more intimate look at users' characteristics. That may not sit well with Zuckerberg, who cherishes the aura of Facebook more than he does its income stream.

Shoichi Nakagawa faces questions about wobbly performance at G-7 meet as government announces economy shrank at 12.7% rate in fourth quarter.

It wasn't the biggest economic contraction in more than three decades that piqued the attention of Japan's media on Monday. It was the apparent drunken attempt of the country's finance minister, Shoichi Nakagawa, to respond to questions at a press conference in Rome following the end of a Group of Seven meeting that fueled chatter in Tokyo.

Eyes drooping and red-faced, Nakagawa slurred his replies and fumbled his answers to reporters in Italy's capital on Saturday. Greeting him back at work in Tokyo on Monday was unequivocal evidence that Japan's economy is the worse for wear. In the three months to the end of the year, the world's second-biggest economy shrank by an annualized rate of 12.7% as exports collapsed. (See "Japan Hits The Skids" and "Asia's Economic Dragons Wheezing")

In a sign of how consumers have shunned made-in-Japan products, Toyota Motor (nyse: TM - news - people ), the nation's leading manufacturer, expects to lose close to $5 billion this year compared with a profit of almost $7 billion a year earlier. (See "Moody's Puts The Boot Into Toyota") Toyota and the rest of the Japanese economy may be in for an even bumpier ride going forward.

"Everything indicates that Q1 will be worse. It's a very severe economic adjustment," said Glenn Maguire, chief Asia-Pacific economist for Societe Generale in Hong Kong. Making matters worse for Japan is the yen. As investors take refuge in the Japanese currency, its value against the dollar and other currencies has gained some 40% in recent months. That means "further retrenchment in capacity and labor," added Maguire, who predicts that average real GDP contraction in 2009 will be between 5% and 8%.

In Rome, Nakagawa, along with other G-7 finance ministers and central bank heads, agreed that the state of the world economy was dire, describing it in a statement as "severe." The group also committed itself to "act together using the full range of policy tools to support growth and employment and strengthen the financial sector.

Back in Tokyo, Nakagawa reportedly blamed his condition on having imbibed too much cough medicine. Speaking on television, one former prime minister, Yoshiro Hori, admonished Nakagawa for his Rome performance.

Nakagawa's boss, Prime Minister Taro Aso, is struggling to deliver on the G-7 commitment. Stimulus measures have been bogged down by political wrangling both within the ruling Liberal Democratic Party and with the opposition Democratic Party Of Japan, which controls the upper chamber of Japan's parliament. With an approval rating dipping below 10% and a national election looming, the beleaguered prime minister, who promised that Japan would be the first industrialized nation to emerge from recession, may have to leave it to his successor to fix the economy.

The reality, reckons Societe Generale's Maguire, is that Japan will be "first in and last out," as a quarterly recovery is unlikely until the second half of 2010. With little hope to sustain it, reaching for the bottle may be the only way for some Japanese to dull the economic pain.

Investors are preparing to close out the last three trading days of 2008 with Wall Street's worst performance since Herbert Hoover was president.

The ongoing recession and global economic shock pummeled stocks this year, with the Dow Jones industrial average slumping 36.2 percent. That's the biggest drop since 1931 when the Great Depression sent stocks reeling 40.6 percent.

The Standard & Poor's 500 index is set to record the biggest drop since its creation in 1957. The index of America's biggest companies is down 40.9 percent for the year.

With these statistics ready to play out this week, it is little wonder why investors are all too happy to close the books on 2008. Analysts are already looking toward January as a crucial period for the market as it tries to recover some of the $7.3 trillion wiped from the Dow Jones Wilshire 5000 index, the broadest measure of U.S. stocks.

"It is hard to gauge a recovery because there's so many things out there that are interactive with each other," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "Nothing is in a vacuum. Anybody who is managing money has to be on the cautious side for at least the first six months of 2009."

He said many analysts are jumping past this week and focusing on next month, especially with Barack Obama set to be sworn in as president on Jan. 20. There is hope that the new administration will deliver another stimulus package, which along with December's interest rate cuts, might help quell the financial crisis.

Trading is expected to remain volatile with many market participants on the sidelines during the holiday-shortened week, but that doesn't mean investors won't be kept busy. With no Santa Claus rally last week, economic data slated for the coming days could sway the market's mood going into 2009.

Investors will be awaiting details about how retailers fared in the post-Christmas sales period, especially since consumer spending drives more than two-thirds of the U.S. economy. The main question is if bargain prices at the malls will be enough to rescue retailers from a bleak holiday shopping season.

Meanwhile, another gauge of how Americans feel about spending money will be released on Tuesday. The Conference Board will issue its December index of consumer confidence, which is expected to rise to a reading of 45.2 for this month, up slightly from 44.9 in November.

The Labor Department will report on weekly jobless claims Wednesday, after a 26-year high of 586,000 initial filings in the week ended Dec. 20.

But the most anticipated economic data will be delivered Friday when investors get a fresh reading on the manufacturing sector. The Institute for Supply Management releases its December survey of purchasing managers.

The index is expected to show a reading of 35.5, down from November's 36.2, according to economists polled by Thomson Reuters. A reading above 50 points to expansion, while a reading below 50 shows a contraction.

There is little in the way of corporate news slated. Though, the final week of the year - when volume is slow and many money managers are on vacation - is often a time when companies slip through lower quarterly forecasts.

Investors were still waiting word if GMAC Financial Services, the financing arm of General Motors Corp., will be eligible for a government bailout. GMAC received the Federal Reserve's approval to become a bank holding company last week, but that was contingent on putting into place a complicated debt-for-equity exchange by 11:59 p.m. EST Friday.

That deadline passed with no word from the company. Analysts have speculated that if GMAC doesn't obtain financial help it would have to file for bankruptcy protection or shut down, which would be a serious blow to parent GM's own chances for survival.

Both General Motors and Chrysler LLC on Monday will receive the first part of the $13.4 billion in emergency loans from the government. Each will receive about $4 billion, then receive the second payment of $5.4 billion on Jan. 16. GM gets a third installment of $4 billion on Feb. 17.

Ford Motor Co. did not participate in the government rescue plan.

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U.S. automakers drew fresh skepticism from lawmakers Thursday in a rocky confrontation over their pleas for an expanded $34 billion rescue package they say they need to survive. Congressional analysts said one bailout plan under consideration would fall short of what the carmakers want.

With time on the current Congress running out, opposition to the bailout appeared to be as strong as last week - before Detroit's Big Three auto chiefs returned to Capitol Hill with more detailed plans on how they would spend the money.

Several lawmakers in both parties are pressing the automakers to consider a so-called "pre-packaged" bankruptcy in which they would negotiate with creditors in advance and downsize, then file for Chapter 11 protection in hopes of emerging quickly as stronger companies. The Big Three have publicly shunned the notion, saying it would kill sales by destroying customers' confidence - but executives have indicated in recent days that it might ultimately be necessary.

The executives all agreed in Thursday's hearing that a multibillion-dollar bailout deal would include a supervisory government board that could order major restructuring of the companies if deemed necessary for survival - similar to the results in many reorganizing efforts under bankruptcy law.

United Auto Worker union President Ron Gettelfinger, aligned with the industry in pressing for the aid, told senators at a Banking Committee hearing that any kind of bankruptcy, even a pre-packaged one, was not "a viable option." Gettelfinger said consumers would not buy autos from bankrupt companies, no matter the terms of the arrangement.

He also warned that in the absence of action by Congress: "I believe we could lose General Motors (nyse: GM - news - people ) by the end of this month." He said the situation was dire and time was of the essence.

The Big Three CEOs told the senators they hoped to make amends for past blunders. "We made mistakes, which we're learning from," General Motors chief executive Rick Wagoner said. Ford CEO Alan Mulally also acknowledged big mistakes, saying his company's approach once was "You build it, they will come."

Has Merck's comeback turned into a wipeout?

Under chief Richard Clark, an unassuming company lifer, Merck (nyse: MRK - news - people ) staged a seemingly amazing turnabout from the dark days of 2004, when it had to stop selling the painkiller Vioxx after its own studies linked the drug to an increased risk of heart attack and plaintiffs' lawyers swarmed the company.

But though Merck's share price surged to pre-Vioxx highs early this year as Clark settled the litigation for just $5 billion and got eight drugs approved in two years, the stock now sits at a Vioxx-era $26, down 50% in 11 months. Don't just blame the financial crisis--that's the worst performance of any big pharmaceutical company this year.

An earnings guidance call Thursday and a meeting with analysts at company headquarters Dec. 9 will give Clark a chance to soothe Wall Street. The problem will be making analysts feel they haven't heard it all before.

One of Clark's first moves, in 2005, was to cut 7,000 jobs; Merck just announced it would cut 7,200 more. He's promised "fundamental changes" to the company's business model. But really getting Wall Street's attention will require unveiling a truly impressive research surprise or announcing a big acquisition.

"I want to like Merck, but they keep not succeeding," says Les Funtleyder, health care strategist at Miller Tabak. "They have some decent people and a very good research structure, but we have to go with the facts and the fact is success has been elusive."

Merck's total sales will drop 1% to $23.9 billion next year, according to analyst John Boris at Citigroup. He's bullish because the stock is so cheap, but in a recent report, he laid out the challenge Merck will face in 2009: Sales of top-seller Singulair, for allergies and asthma, will barely grow because of safety worries, and generics maker Teva Pharmaceuticals (nasdaq: TEVA - news - people ) could launch a copycat ahead of schedule. The company's vaccines division has stumbled due to manufacturing and marketing issues that executives need to fix--fast.

Has Merck's comeback turned into a wipeout?

Under chief Richard Clark, an unassuming company lifer, Merck (nyse: MRK - news - people ) staged a seemingly amazing turnabout from the dark days of 2004, when it had to stop selling the painkiller Vioxx after its own studies linked the drug to an increased risk of heart attack and plaintiffs' lawyers swarmed the company.

But though Merck's share price surged to pre-Vioxx highs early this year as Clark settled the litigation for just $5 billion and got eight drugs approved in two years, the stock now sits at a Vioxx-era $26, down 50% in 11 months. Don't just blame the financial crisis--that's the worst performance of any big pharmaceutical company this year.

An earnings guidance call Thursday and a meeting with analysts at company headquarters Dec. 9 will give Clark a chance to soothe Wall Street. The problem will be making analysts feel they haven't heard it all before.

One of Clark's first moves, in 2005, was to cut 7,000 jobs; Merck just announced it would cut 7,200 more. He's promised "fundamental changes" to the company's business model. But really getting Wall Street's attention will require unveiling a truly impressive research surprise or announcing a big acquisition.

"I want to like Merck, but they keep not succeeding," says Les Funtleyder, health care strategist at Miller Tabak. "They have some decent people and a very good research structure, but we have to go with the facts and the fact is success has been elusive."

Merck's total sales will drop 1% to $23.9 billion next year, according to analyst John Boris at Citigroup. He's bullish because the stock is so cheap, but in a recent report, he laid out the challenge Merck will face in 2009: Sales of top-seller Singulair, for allergies and asthma, will barely grow because of safety worries, and generics maker Teva Pharmaceuticals (nasdaq: TEVA - news - people ) could launch a copycat ahead of schedule. The company's vaccines division has stumbled due to manufacturing and marketing issues that executives need to fix--fast.

With a short hop, the Prince launches himself onto a canyon wall. He gracefully races across its face--circumnavigating a chasm that would send long jumpers plummeting to their demise--before dropping, safely, onto a rocky outcropping. A hop over the edge of his perch and he plummets. But instead of smashing on the stones below, he glides to the ground--his descent controlled by a taloned gauntlet biting into the rock.

It is like watching the purposeful yet effortless acrobatics of Chow Yun Fat and Michelle Yeoh in Hidden Tiger, Crouching Dragon. Only this is the new "Prince of Persia." Arriving in stores Tuesday, "Prince" returns to Persia--its fantastical vistas, acrobatics and swordplay--after a three-year hiatus from home consoles.

The hope: That by giving the franchise a rest and a fresh look, Ubisoft will increase consumer demand for the title.

Ubisoft's first "Prince of Persia," which was based on a series started by game designer Jordan Mechner in 1989, launched in 2003 to critical acclaim for its combination of wall-running acrobatics and slow-motion combat. Subtitled "The Sands of Time," the game has sold nearly 1.5 million copies in the U.S., according to market research firm NPD Group.

A year later, Ubisoft released the sequel, "Warrior Within." It was compared favorably with its predecessor but sold less than one million copies in the U.S. The 2005 version, "Two Thrones," sold only 883,000 copies.

Notice a pattern? No single factor can claim all the credit for the diminishing returns--be it new competition or consumers transitioning to new consoles--but part of the problem with "Prince" was Ubisoft's decision to release the title annually.

It is a tactic adopted by the industry's largest players like Activision Blizzard (nasdaq: ATVI - news - people ) and Electronic Arts (nasdaq: ERTS - news - people ). By pumping resources into existing brands, you can guarantee a certain amount of stability in your portfolio. That's one of the main reasons there's an annual update to EA's "Madden" and Activision's "Call of Duty."

As gloom descends on Silicon Valley, most startups and giants are growing cautious and cutting back. But not Facebook. The social-networking Web site sees a bleak economy as all the more reason to press ahead with aggressive plans for growth. "This is not the time for tech companies to be cutting back; this is the time to be hitting the accelerator," says Peter Thiel, a Facebook board member and investor.

Facebook executives think they can use the economic downturn to gain ground on the competition. So they're going to great lengths to keep user growth on track in these rough times. The company is gearing up for more acquisitions, hiring rapidly, and rolling out new advertising programs. Rather than trim the site's development costs, Facebook has engineers cooking up versions in languages such as Xhosa, Tagalog, and French Canadian to go after niche audiences around the world. "We're in this game not just for five or 10 years," says Sheryl Sandberg, Facebook's chief operating officer. "We're in it for 20 to 30 years."

To fuel growth, the company asked the Securities & Exchange Commission earlier this year for an unusual exemption. Typically, private companies that exceed 500 shareholders must start disclosing their financial results publicly. (This is the law that helped push Google to go public in 2004.) Facebook is approaching that threshold, so the company asked the SEC for a waiver that will allow it to keep hiring and handing out restricted stock without public disclosure. The SEC granted the request on Oct. 14. That will help the company reach 800 employees by the end of the year, up from 400 at the close of 2007.

The company is even reducing its revenue goals to pull in more users. In January, founder and CEO Mark Zuckerberg said Facebook was shooting for revenues of $300 million to $350 million this year. But this spring, Zuckerberg and his board lowered the revenue target to $250 million to $300 million, say sources familiar with company finances. Thiel says engineers were shifted away from ad programs to concentrate on fresh features, languages, and other projects that will boost user growth. Even as the economy has weakened in recent months, Facebook has decided to stick with its spend-now, profit-later approach. "We still think it's a land grab where we have to try to get to scale first," says Thiel.

It's a gutsy strategy, increasingly rare in Silicon Valley. Last month, prominent venture firm Sequoia Capital gave a presentation to its startups titled "R.I.P. Good Times," which argued that companies must cut costs fast to survive. One Power Point slide included a skull-and-crossbones and the words "death spiral" to show the likely fate of startups that fail to come to grips with the new reality. The Sequoia view has become accepted wisdom among Valley venture capitalists, leading to layoffs at scores of companies.

Facebook isn't yet profitable. But Thiel says the company can afford to be aggressive. It has raised about $500 million and is "slightly cash-flow negative," Thiel says. At its current burn rate, he says, the company has enough cash for three or four years. "If we stopped growing, we could make money, but it makes no sense for us to stop growing," he says.

Facebook's strategy stands in contrast to that of rival MySpace (NWS). Part of Rupert Murdoch's publicly traded News Corp. (NWS), MySpace has dialed back on growth to focus on profits. Over the past year the site has expanded modestly, to 118 million users, while Facebook has more than doubled in size, to 161 million users, according to research firm comScore (SCOR).