Obviously some people will choose one way and some people the other. And Facebook will continue to serve those that are willing to trade privacy for convenience/connectedness.
> And Facebook will continue to serve those that are willing to trade privacy for convenience/connectedness.
But it won't serve them as well if half their friends aren't there any more. Facebook's biggest strength today is its ubiquity: I am "the awkward one", the odd one out, because I gave up on Facebook a long time ago over privacy concerns.
I have noticed over the past few months that I get an increasing number of e-mails from friends, sent to increasingly large numbers of my other friends as well as me, and mentioning that "X is up on Facebook but for the people who aren't...". At this rates, it's going to go back to being easier to send messages over e-mail and host your photos up on something like Flickr, and if that happens, Facebook is probably toast.
Also I'd dispute your statement "It's business model fundamentally relies on invading your privacy".
Without any invasion of privacy, they can probably make a few hundred million a year from random ads. Using your demographics to target ads better at you probably raises that to a few hundred million more.
So IMHO, invading your privacy is in no way necessary for Facebook to operate. It just allows them to optimize a little better.
I think you're underestimating the difference in revenue potential between targeted and untargeted advertising. The jury is out on whether Facebook actually has a sustainable advertising revenue anyway, but I'd guess that the potential income probably drops by an order of magnitude if you can't target specific demographics.
