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Facebook and LinkedIn Slapped on The Wrist for Privacy

NEW YORK (TheStreet) -- Facebook (FB - Get Report) and LinkedIn (LNKD - Get Report) are facing user and media criticism over privacy, but analysts project users will remain steadfast to the sites, that despite certain levels of distrust.

The social network giants have been caught playing with emotions and emails but users will forgive them soon enough, according to Morningstar analyst Rick Summer. "I think generally the reason there is much backlash is because these websites are so needed and used very heavily by professionals on the LinkedIn side and certainly consumers on the Facebook side," Summer said in a phone interview with TheStreet. "When you have a backlash it really means the people can't find an alternative - it's important to the fabric of what they're doing."

Users and privacy companies are calling out Facebook for manipulating emotions. For a research paper published in Proceedings of the National Academy of Sciences, Facebook controlled the posts streaming on more than 689,000 News Feeds by choosing whether users would see positive or negative posts then monitored the users' responses.

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Facebook, which had more than 1.2 billion monthly active users (MAUs) denied that the data used in the study was associated with a particular person. "In this study, none of the data used was associated with a specific person's Facebook account," said a Facebook spokesperson via email. "The process we used to conduct the study was designed to make the data anonymous. We are confident our policies and practices complied with the law in all respects."

Since the announcement of the experiment last week, for which Chief Operating Officer Sheryl Sandberg has apologized, Facebook shares fell almost 3%, compared to a 0.79% gain for the S&P 500.

LinkedIn is also fighting a blemished reputation when it comes to user privacy and trust. In June, U.S. District Judge Lucy Koh in San Jose, Calif. ruled that customers could pursue claims that the social media site violated users' right of publicity. The Mountain View, Calif.-based LinkedIn, which had 296.5 million members at of the end of the first quarter, hacked users' emails to send out promotional material through customers' address books. Users agreed to one initial endorsement email sent by the professional networking website but customers claimed they were unaware of the two reminder emails sent out by the company. LinkedIn could not be reached for comment.

Avondale Partners senior research analyst Randle Reece, said the company won't experience much of a hit from its invasion of privacy.

"If there is a consistent pattern of adding one more intrusion on top of another, it would be a problem" said Reece, "The company should be careful to social media reactions to things like this to tell them where the boundaries are."

Since the District Judge ruling in June, LinkedIn shares have risen 4.8%, compared to a 1.4% gain in the S&P 500.

Unlike other leading names in social media, Twitter (TWTR) was awarded for what it offers its users in privacy. With 255 million MAUs, the San Francisco, Calif.-based social network was acknowledged as one of the top websites for consumer protection, security and privacy by Online Trust Alliance in June. Twitter scored top marks in the Online Trust Audit and Honor Roll earning a spot among the top 29% of the 800 sites examined for its practices to protect user data.

Twitter shares have gained 13.3% since receiving the privacy award, compared to a 4.9% gain for Facebook and a 4.8% gain for LinkedIn.

Despite some of the backlash seen, Summer said the negativity towards Facebook and LinkedIn will be short-lived, with both companies expected to continue mining user data.

"Do I think all of this will pass? I absolutely do. I don't think the issues will create long term issues," Summer stated. "There will always be this tension and I expect these companies that are trying to use data to do so aggressively."

-Written by Kathryn Mykleseth in New York

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