Last week, Facebook announced significant improvements to its privacy management tools. As explained in the new Privacy Guide, this upgrade allows users to exercise greater and easier choice over sharing of their information on the site and through the site to third party applications and external websites.

By giving users powerful new tools to further protect their privacy, Facebook has employed a potent weapon to deal with marketplace apprehensions: self-regulation. Government intervention stands little chance in acting as swiftly or as effectively to tackle such matters. Rather than short-circuiting the self-regulatory process, we should trust that users are capable of choosing for themselves if given the right tools, and that companies like Facebook will respond to reputational pressure to develop, and constantly improve, those tools. That approach is far more likely to move us towards the ideal of user empowerment than is heavy-handed government regulation, which would override marketplace experimentation and have many unintended consequences for free online sites and services like Facebook.

Today's announcement represents a major leap forward for privacy controls, but of course the company will have to keep innovating in this area as it does in others. In particular, I hope Facebook and other social networking services like MySpace, Buzz, LinkedIn and Flickr will all work on the next logical step forward: building Applications Programming Interfaces (API) that will allow third party tools to tap into each site's unique privacy settings so that users can have a single "dashboard" for controlling how they share data across platforms. Such a "Privacy API" would take one step further what Facebook has started today: the challenging problem of giving users both granularity/complexity and ease/simplicity, depending on what they want in any particular context.  Ideally, such tools would also allow users to harmonize their lists of friends across multiple platforms so they can manage their sharing more easily. For example, Facebook offers powerful privacy functionality by letting users restrict access to particular information or shared items to, say, their family, or specific groups of friends configured by the user. Portability of those lists would make privacy empowerment far easier for users.

But Rome wasn't built in a day, and it's important to remember that opening up this kind of access comes with its own risks. Again, innovation is an iterative process and, as such, takes time. Today's announcement should instill great confidence that there is strong reputational pressure on companies like Facebook to meet this challenge, and vie with each other for leadership in privacy empowerment.

One thing Facebook CEO Mark Zuckerberg mentioned in the press conference bears special emphasis: It's a myth that Facebook is hell-bent on getting users to share more information more widely for the sake of of advertisers. In fact, advertising on Facebook doesn't involve sharing information about users with advertisers. In fact, advertisers buy ads that Facebook shows to users Facebook (or rather, its algorithms) thinks might be interested. If anything, sharing more information can actually help Facebook's competitors if users take advantage of Facebook Connect's data portability to port their data over to competing platforms. So the widely perceived conflict of interest between Facebook's economic interests and users' privacy just doesn't exist. The site gains from having more users spend more time on the site, not from tricking users into "giving up their privacy."