Mounting criticism has forced the social network to revert to its old terms of service.

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.

As chief executive of Mercy Corps since 1994, Neal Keny-Guyer helped turn the Portland (Ore.) relief organization into a global powerhouse with 3,500 employees and a budget of nearly $300 million. But he was taken aback last year when one of his lieutenants proposed the radical step of buying a bank in Indonesia. Why would a not-for-profit disaster relief agency go the capitalist route and buy a bank?

Gradually, though, he warmed to the idea. He saw that, if Mercy Corps operated a wholesale bank that could offer capital to some 2,000 local microcredit organizations and had an ATM network, it could help turn microfinance into a powerful force in Indonesia. Keny-Guyer was in uncharted territory, however. In the last days before the acquisition closed in May, he feared the risky gambit would end in disaster. "I imagined a newspaper headline saying, `Mercy Corps' Bank in Bali Fails,' " he recalls. "I thought of the reaction of our donors to that bit of news."

Now, as the renamed Bank Andara cranks up operations, Keny-Guyer is hopeful. If the strategy works in Indonesia, he says, Mercy Corps may try it in the Philippines next.

This departure from business as usual in the nonprofit realm is part of a major shift in the way people are taking on the world's social problems. In developing nations and parts of the U.S., governments have failed to make substantial progress against poverty, disease, and illiteracy. Traditional charities and social service agencies often provide Band-Aids for problems instead of long-term solutions. Now a new breed of do-gooder—the social entrepreneur—is trying fresh approaches. While the term is used in many different ways, there's a narrow definition that gets to the heart of what makes these people stand out: Rather than depending solely on handouts from philanthropists, social entrepreneurs generate some of their own revenues and use business techniques to address social goals. "Traditional ways of doing things haven't produced the kind of progress we all hoped for, so we're trying to come up with new approaches that are truly transformational," says Keny-Guyer.

The idea of the social entrepreneur has been percolating for decades, but it has become a mass movement in the past couple of years. Thousands of people are launching ventures and trying out new business models, both for-profit and nonprofit. Now that the global financial crisis is squeezing charitable giving, socially oriented organizations are pushing even harder to reduce their dependence on donors and generate their own funds. Lehman Brothers, for instance, was a generous backer of both nonprofits and social entrepreneurs. No more. In this climate, only the most efficient and effective organizations will thrive.

Social entrepreneurs are being backed in part by a new generation of super-aggressive philanthropists and social investors, including Microsoft (MSFT) co-founder Bill Gates and former eBay (EBAY) executives Pierre M. Omidyar and Jeffrey Skoll. These guys expect results from their social investments and grants. Says Gates in an interview with BusinessWeek: "Nonprofits are applying what we've typically thought of as business strategies for better outcomes, and businesses are beginning to apply what I call creative capitalism strategies to increase the positive social impact of their work. That's a powerful combination." He believes the most effective way to make social progress is through partnerships among nonprofits, businesses, government, and philanthropists.