Levy: Do Real Friends Share Ads?

Facebook has never been shy about its ambitions. Its 23-year-old founder, Mark Zuckerberg, sees its current valuation ($15 billion, determined by Microsoft's $240 million purchase of 1.6 percent of the company) and its huge user base of 55 million as only a way station to even grander numbers. So it's not surprising that the crucial step of developing an advertising strategy that makes use of Facebook's social-networking assets would be drenched in hyperbole. When he introduced the plan last month, Zuckerberg claimed that it was a once-in-a-century kind of media transformation.

Now some people are wondering whether that's once a century too often. While the Facebook strategy does break new ground, it's also been sending off alarms among some privacy advocates. But the scheme's biggest problem may be in its very ingenuity: Facebook may have so skillfully addressed the desires of advertisers that it oversteps its relationship with its users.

Those members, of course, are what Facebook is all about. They use the service to keep up with their friends, family members and associates. The main way of learning what everyone is up to is by the News Feed that sits in the center of one's home page. It informs you of your friends' changes in status (from "married" to "it's complicated"), new pictures and other activities by way of brief "stories" about them.

The News Feed also runs ads, which look just like the items about your friends, except for a gray tag that identifies them as sponsored stories. This has always struck me as a bit strange—like Brian Williams sandwiching a plug for Subway between stories on Iraq and health-care reform—but not terribly intrusive. With its new program, Facebook announced that it was empowering advertisers to target those ads using the information on the personal profiles that members supply to Facebook. A national advertiser could sell ads to a huge group (all women between 25 and 40), or a local advertiser, like a restaurant, could pay much less to reach a microgroup (Ivy League-educated Indian-food lovers in a specific ZIP code). You could even target people who work for a specific company; Facebook itself has used this feature to solicit employees from its competitors.

It's an innovative strategy. But since Facebook users originally supply that information to share with friends, and not with advertisers, they may believe that utilizing those details for ad targeting wasn't part of the deal. (Facebook's privacy officer, Chris Kelly, says that the personal data itself is not given to the advertisers.)

But there's another, more controversial part of the Facebook program: social ads. When someone patronizes a business on Facebook, the buyer's transaction is reported to his or her friends on the News Feed. In a related program called Beacon, those same reports can be generated by a purchase from an outside e-commerce site affiliated with Facebook, like the ticket site Fandango. If the activity involves an advertised product, the member might find him- or herself touting the product in a News Feed ad—an unwitting product endorser: "Bob Dylan bought 'I'm Not There' on Fandango." (These pitches could also appear in display ads.) "Trusted referrals are the holy grail of advertising," said Zuckerberg, who added that he's offering advertisers something new: "Getting into the conversations between people."

That's good for advertisers, but what about the rest of us? When you have a conversation among your buddies or your family, do you want Coke, Blockbuster and Verizon involved? The Beacon program in particular has upset some people. Facebook says it offers users a chance to opt out of having their activities circulated, but some people have reported that via Beacon they inadvertently exposed their Christmas shopping purchases to the intended recipients. The political action group MoveOn.org began a group within the service called Facebook: Stop Invading My Privacy, and in less than a week 30,000 members signed up.

Facebook's official response has been that it's listening to what its members say and will tweak the system to give them more control over what gets reported. Chamath Palihapitiya, Facebook's vice president of product marketing and operations, says that protests notwithstanding, member feedback has been positive so far, and though he won't give numbers, he says that the social-advertising program has exceeded Facebook's expectations. (Indeed, last Thursday they made changes that require users to give more permission before their purchases on other websites are broadcast on Facebook.)

Still, it seems to me that the best form of advertising comes when potential customers welcome the messages sent by advertisers. This is why Google has been so successful in selling ads targeted to search terms; those "sponsored links" offer at least the potential to supply information relevant to what people are looking for at a given moment. It's much tougher to see any user value in social ads. Who wants to broadcast the news that he's bought a can of Sprite? And who wants to see that on a News Feed?

Facebook has had a spectacular year, but it would do well to remember that it attained its lofty status by putting users first. The company should be particularly careful with its crown jewel, the News Feed; just last week rival MySpace announced that it was going to develop a similar feature. Hey, Facebook, consider yourself poked.