Next Step in the Facebook Privacy Blowback: The FTC Complaint. The Real Question: Will Advertisers Care?

The clamor about Facebook’s changes to its privacy policy–the ones whereby the social network encourages its users to abandon their privacy–is getting louder.

Today, a coalition of privacy groups, led by the Electronic Privacy Information Center, filed a complaint with the Federal Trade Commission asking the regulators to force Facebook to turn on its old settings. The complaint, and Facebook’s response, are at the bottom of this post.

I have no idea if the Feds will end up getting Facebook to do anything. But the privacy groups can still accomplish a lot without injunctive relief.

“What we’re going to do is drag Facebook into the halls of the FTC, and have them examine all of their policies,” says Jeff Chester, executive director of the Center for Digital Democracy, one of the groups backing the complaint.

That could certainly slow down the company. So could inquiries from European governments, which have become more inclined to regulate American technology outfits. Just ask Microsoft (MSFT).

The real concern for Facebook is if the private sector starts complaining. Recall that Facebook only reversed course on its ill-fated Beacon project two years ago after advertisers started questioning the program, which was designed to share your shopping and branding choices with your pals.

Since that debacle, marketers seem to have gotten comfortable with Facebook, and Mark Zuckerberg has a real ad business now. And I’ve yet to hear a peep from big brands with second thoughts. But if the privacy blowback gets big enough, that could change.

Again, I don’t think the proposition that Facebook is offering its users–the opportunity to share every detail about their online lives with anyone with a browser–is an inherently bad one. There are lots of people who are comfortable with the notion.

The problem is that Facebook has switched course midstream. It started off as a site that limited users’ information to the outside world and now wants to invert that. But the switch has been badly explained, done in such a way that many users don’t understand what happened.

Facebook says this criticism is overblown and that lots of people do understand the switch. Spokesman Barry Schnitt says at least half of Facebook’s users have made changes to their privacy settings since the new rules went into place. Which means, he argues, that at least half of its users understand them.

Entirely possible. But Facebook now has up to 350 million users. Which means that tens of millions of users could be unaware of what’s going on. And they’ll only find out when their party pictures or baby videos or whatever turn up on Google (GOOG).

Facebook could easily solve this by clearly explaining that its “Share With Everyone” option really does mean everyone and–crucially–making it an opt-in proposition. But then adoption rates would shrivel, and the company wouldn’t be able to pull off its goal: Making as much of the site as public as possible.

This one isn’t going away anytime soon.

EPIC’s complaint, followed below by Facebook’s response:

EPIC-FacebookComplaint –

Facebook’s response:

We’ve had productive discussions with dozens of organizations around the world about the recent changes and we’re disappointed that EPIC has chosen to share their concerns with the FTC while refusing to talk to us about them.

Facebook’s plan to provide users control over their privacy and how they share content is unprecedented in the Internet age. We have gone to great lengths to inform users about our platform changes, beginning with our July announcement; founder Mark Zuckerberg’s open letter to our 350 million users; our robust press and analyst outreach; the notice-and-comment framework for our new privacy policy; and simple customization tools for users.

We’re pleased that so many users have already gone through the process of reviewing and updating their privacy settings and are impressed that so many have chosen to customize their settings, demonstrating the effectiveness of Facebook’s user empowerment and transparency efforts. Of course, the new tools offer users the opportunity to decide on privacy with every photo, link or status update they wish to post, so the process of personalizing privacy on Facebook will continue.

We discussed the privacy program with many regulators, including the FTC, prior to launch and expect to continue to work with them in the future.