Who owns your address book?

(Fortune Magazine) -- Like a good citizen of the Internet, I've been carefully building and maintaining my digital address books for years. Work e-mail addresses, nonwork e-mail addresses, cellphone numbers - the whole shebang. My electronic Rolodex now holds a few hundred names - a treasure trove of people, data, and memories good and bad.

Now, with the emergence of social networks like MySpace, Facebook, and LinkedIn, I've discovered to my happy surprise that my contact list has a hidden value far beyond my personal convenience. Sign up for virtually any social network these days, and you'll be asked if you want to upload your contacts. Click yes, and your computer will automatically check the names of your contacts against the names of registered users and, just like that, connect you with your in-network buddies.

This is a more powerful feature than it might at first appear. That's because the more people you know on a network, the more useful it is. (Remember what it was like when your office finally opened up its internal e-mail system to the Internet at large?) It's a perfect example of what Robert Metcalf, the guy who created Ethernet, dubbed the network effect. (Cue the PowerPoint slide showing how the value of a network grows exponentially with the number of its users.) The network effect is a prime driver of the Internet and is critical to the success of burgeoning social networks.

That helps explain the tempest brewing in Silicon Valley over a seemingly simple question: Who really owns your address book?

Many Internet companies - like Google (GOOG, Fortune 500) and Yahoo (YHOO, Fortune 500) - say unequivocally that you do. If you sign up for free e-mail accounts on their services, you're free to take your friends with you and export your contact lists to any service that you like.

But Microsoft (MSFT, Fortune 500), while publicly embracing the idea of openness, has been saying something different behind the scenes. Since last summer, lawyers representing the company have been sending cease-and-desist letters to startups that offer new users the ability to import their Microsoft Hotmail contacts. In a move that Valley guys are deriding as ham-handed, Microsoft is offering a quid pro quo: Third-party sites can access Hotmail contacts if they make Microsoft's instant-messaging client available to their users - for 25 cents per user per year. Then the company says it will waive the fee if the sites make Messenger the exclusive in-network messaging client. Such a deal.

It's a pitch that has not won Redmond any friends in Silicon Valley. "This is a great example of why Google is the leader in the Net ecosystem and Microsoft is not," one entrepreneur (who does not work for Google) told me. "Microsoft is the 'anti-data-portability company.'"

Microsoft insists that its primary concern is our security. These little startups are storing your password along with your address book, says Brian Hall, general manager for Windows Live. "We want to make sure our data are kept between our users and our servers."

There is a better way, of course - though it remains to be seen whether it will work. A group of companies, aligned under the banner of the DataPortability Workgroup, is trying to craft standards that would make it easy for the data we collect online to move as freely and securely from one website to another as we do. As long as two sites abide by the DataPortability rules, they can effortlessly send anything back and forth between them - data, photos, address books. "It's safe, secure, painless," says Chris Saad, the Aussie who co-founded and chairs the DPW. Hundreds of individuals and several leading companies - including Yahoo, Facebook, Google, and even Microsoft - have signed on to the workgroup, and Saad says he's optimistic that we'll see a system in place later this year.

I'm skeptical. While it's fashionable these days to pay lip service to openness, decisions to implement it are often made for purely business reasons. Google and Yahoo, with less to lose, have cast their lot with data portability. Microsoft, having given away more than 300 million free Hot-mail accounts, is still weighing the pros and cons. Letting go won't be easy, but it's the right thing to do. My contacts should belong to me.