Facebook looks to cash in on user data

Apr 22, 2011 By Jessica Guynn

Julee Morrison has been obsessed with Bon Jovi since she was a teenager. So when paid ads for fan sites started popping up on the 41-year-old Salt Lake City blogger's Facebook page, she was thrilled. She described herself as a "clicking fool," perusing videos and photos of the New Jersey rockers.

Then it dawned on Morrison why all those Bon Jovi ads appeared every time she logged onto the social networking site.

" is reading my profile, my interests, the people and pages I am 'friends' with and targeting me," Morrison said. "It's brilliant social media, but it's absolutely creepy."

For Facebook users, the free ride is over.

For years, the privately held company founded by in a Harvard dorm room put little effort into ad sales, focusing instead on making its service irresistible to users. It worked. Today more than 600 million people have Facebook accounts. The average user spends seven hours a month posting photos, chatting with friends, swapping news links and sending birthday greetings to .

Now the Palo Alto company is looking to cash in on this mother lode of personal information by helping advertisers pinpoint exactly who they want to reach. This is no idle boast. Facebook doesn't have to guess who its users are or what they like. Facebook knows, because members volunteer this information freely - and frequently - in their profiles, , wall posts, messages and "likes."

It's now tracking this activity, shooting online ads to users based on their demographics, interests, even what they say to friends on the site - sometimes within minutes of them typing a key word or phrase.

For example, women who have changed their relationship status to "engaged" on their Facebook profiles shouldn't be surprised to see ads from local wedding planners and caterers pop up when they log in. Hedgehog lovers who type that word in a post might see an ad for a plush toy version of the spiny critters from Squishable.com. Middle-aged men who list motorcycling as one of their hobbies could get pitches from Victory Motorcycles. If a Facebook user becomes a fan of 1-800-FLOWERS, her friends might receive ads telling them that she likes the floral delivery service.

Marketers have been tracking consumers' online habits for years, compiling detailed dossiers of where they click and roam. But Facebook's unique trove of consumer behavior could transform it into one of the most powerful marketing tools ever invented, some analysts believe. And that could translate into a financial bonanza for investors in the seven-year-old company as it prepares for a public offering, perhaps as early as next year.

But privacy watchdogs said Facebook's unique ability to mine data and sell advertising based on what its members voluntarily share amounts to electronic eavesdropping on personal updates, posts and messages that many users intended to share only with friends.

"Facebook has perfected a stealth digital surveillance apparatus that tracks, analyzes and then acts on your information, including what you tell your friends," said Jeffrey Chester, executive director of the Center for Digital Democracy. "Facebook users should be cautious about whether the social networking giant ultimately has their best interests at heart."

Bon Jovi fan Morrison said she removed some information from her profile to make it more difficult for advertisers to target her: "I thought, 'Wait a minute, I didn't give you permission to look into my life,' " she said.

Facebook said it does not disclose information that would allow advertisers to identify individual users, instead filtering based on geography, age or specific interests. It also lets users control whether companies such as 1-800-FLOWERS can display the users' names to others to promote products. But any information users post on the site - hobbies, status updates, wall posts - is fair game for ad targeting.

Facebook's first experiment with paid ads was a flop. In 2007 it rolled out Beacon, which broadcast information on Facebook about users' activities and purchases elsewhere on the Web without their permission. Facebook pulled the program after settling a lawsuit brought on behalf of Facebook users.

This time around company officials appear to be proceeding more cautiously. David Fischer, Facebook's vice president of advertising and global operations, said Facebook delivers ads that are relevant to users' lives.

"This is an opportunity for brands to connect with you," Fischer said. "When someone likes a brand, they are building a two-way conversation, creating an ongoing relationship."

A lot is riding on getting it right. Last year, online advertising in the U.S. grew 15 percent to $26 billion, according to the Internet Advertising Bureau.

People familiar with Facebook said its ad revenue doubled to $2 billion in 2010, and is expected to double again this year as more major advertisers including American Express, Coca-Cola and Starbucks climb aboard.

In February, more than a third of all online display ads in the U.S. appeared on Facebook, more than three times as many as appeared on its closest competitor Yahoo, according to research firm ComScore Inc. Facebook's moneymaking potential has wowed investors. Its market value is estimated at $55 billion on the private exchange SharesPost.

"If you take a look at the history of media, ad dollars go where the eyeballs are," Wedbush Securities analyst Lou Kerner said. "If you look at Google today, with annual revenue of $29 billion, it's not hard to think of Facebook generating that kind of revenue in four or five years. That's why we continue to be bullish on Facebook even at these price levels."

Facebook still faces some skepticism from big brands that question how often people click on the ads or how effective they are in getting people to buy something. One recent survey found that Facebook ads performed about half as well as traditional banner ads.

But Facebook's ability to pinpoint paying customers has dazzled some small-business owners, including Chris Meyer. Over the past 18 months the Minneapolis wedding photographer had Facebook aim his ads specifically at female users who divulged the following information about themselves on the social networking site: college graduates, aged 24 to 30, who had just gotten engaged and lived within a 50-mile radius of Minneapolis.

Meyer said his $1,700 ad buy generated $110,000 in sales.

"I could not have built my business without Facebook," Meyer said.

It's much the same for Anne Puthoff. Her store, Emmy's Bridal, is located in Minster, Ohio, population 2,800. She managed to pack the shop for a special weekend trunk show of prom dresses - in February, no less. Her secret weapon: $200 worth of Facebook ads targeting high school girls from the surrounding area.

"Our fan base has grown steadily in an economy where stores are going out of business or not thriving," Puthoff said. "I think that's due largely to the new customers we are bringing in via Facebook."

Indeed, Facebook users such as Kara-Noel Lawson said they enjoy receiving ads that from merchants they like instead of useless spam. The 30-year-old mother of three from Rancho Santa Margarita, Calif., said she routinely "friends" businesses on the social media site and clicks on advertising that interests her. More often than not, she said, she is rewarded with coupons, gift cards and discounts.

"I don't feel any weird privacy thing," she said. "We are all putting everything out there already."

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User comments : 20

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Bob_B
not rated yet Apr 22, 2011
You get what you pay for!
panorama
5 / 5 (3) Apr 22, 2011
Adblock Plus...thank you very much Wladimir Palant.
shagrabanda
1 / 5 (3) Apr 22, 2011
Just turned ABP off to see what adverts I would get and they're all about surfing and snowboarding: I'd much rather have that than all the random stuff I used to get. Plus if the adverts are more directed, presumably they're more valuable and so facebook wont need to show as many.
Don't see the problem with this at all.
Norezar
not rated yet Apr 23, 2011
Adblock Plus...thank you very much Wladimir Palant.


Don't forget your hosts file!
Doug_Huffman
5 / 5 (1) Apr 23, 2011
The problem with commercial content is that it is pushed on the unwilling and the unwitting. The internet paradigm of push/pull has been overwhelmed by the pushy unwitting.

Good people ought to be armed as they will, with wits and Guns and the Truth. Retire. Strike! Atlas is shrugging.
epsi00
5 / 5 (2) Apr 23, 2011
Adblock Plus...thank you very much Wladimir Palant.


Add Noscript to that and you have a winning combination. No more crap on your browsing experience if you use firefox.
MorituriMax
not rated yet Apr 23, 2011
The day that advertising agencies began telling us we "needed" their products because we "smelled bad" without them was the day the world changed for the worse.
nik_high
not rated yet Apr 24, 2011
It could not be all because facebook is selling it. There are other sites that keep a track of who is changing what information about themselves not only on facebook but on other sites as well. So you might want to limit your personal life not only on facebook but any other social/professional networking media on the net.
6_6
5 / 5 (1) Apr 25, 2011
of course.. realized this the moment I went there and never bothered to return. do yourself a favor by adding this to your hosts:

#Data Harvesting-FaceBook
127.0.0.1 static.ak.fbcdn.net
127.0.0.1 static.ak.connect.facebook.com
127.0.0.1 ak.connect.facebook.com
127.0.0.1 connect.facebook.com
127.0.0.1 http://www.connec...book.com
127.0.0.1 badge.facebook.com
127.0.0.1 0.58.channel.facebook.com
127.0.0.1 1.58.channel.facebook.com
127.0.0.1 2.58.channel.facebook.com
127.0.0.1 3.58.channel.facebook.com
127.0.0.1 4.58.channel.facebook.com
127.0.0.1 login.facebook.com
127.0.0.1 register.facebook.com
127.0.0.1 widgets.fbshare.me
127.0.0.1 m.facebook.com

you'll thank yourself at a later time in the future.
Silver_the_Fox
1 / 5 (3) Apr 26, 2011
I'm not surprised that they are doing this, I would, not hater comments please, It's just good business.
frajo
not rated yet Apr 27, 2011
It's just good business
Interesting. Like slavery?
If not, why not?
Ethelred
not rated yet Apr 27, 2011
'It isn't personal. Its just business.'

Michael Corleone

Ethelred
Javinator
4 / 5 (1) Apr 27, 2011
I just don't see how this affects anyone's life. Now instead of having random ads not to click on you have targeted ads not to click on.

Interesting. Like slavery?
If not, why not?


That's a marjon argument. Targeted advertising is not the same things as slavery whatsoever.

A life of servitude living as property vs. a website you choose to use that puts advertisements on the screen based that you can choose to click on based on what you type and look at on that website?

How is it like slavery at all?
frajo
not rated yet Apr 27, 2011
I just don't see how this affects anyone's life. Now instead of having random ads not to click on you have targeted ads not to click on.
I don't have random ads; I'm a PhysOrg sponsor.
And to affect someone's life it's not necessary that you see how it does.

Interesting. Like slavery?
If not, why not?


That's a marjon argument. Targeted advertising is not the same things as slavery whatsoever.
Of course not. I just countered an unsubstantiated claim with another one.

Javinator
not rated yet Apr 27, 2011
I don't have random ads; I'm a PhysOrg sponsor.
And to affect someone's life it's not necessary that you see how it does.


I'm referring to the article which is referring to Facebook specifically.

Except for some kind ridiculous butterfly effect argument, I still fail to see how targeted advertising is a worse thing than the random advertising already in practice.
Silver_the_Fox
1 / 5 (1) Apr 27, 2011
Would you like it if all you recieved were abortions ads? And all you are, are a male who works in a gas station. Do you need those ads? Or how about an ad that is for cheaper foods, with the same taste (mostly).

Your choice. And before a Marjon-like comeback shows up, just remember I was speaking Hypothetically.

Any Questions?
Silver out.
J-n
5 / 5 (3) Apr 27, 2011
How does targeted advertising affect me? The ads don't affect me. The fact that personally identifying information is sold to someone without my permission does have the potential to affect me.

How often do we hear of data being stolen from companies on the internet? How can i control where my data is, and keep relatively secure if it's being traded around without my permission?
frajo
not rated yet Apr 28, 2011
Except for some kind ridiculous butterfly effect argument, I still fail to see how targeted advertising is a worse thing than the random advertising already in practice.
About this, I agree. I'd even prefer targeted over random if I'd have to choose. But no ads is best.
Norezar
5 / 5 (2) Apr 28, 2011
How does targeted advertising affect me? The ads don't affect me. The fact that personally identifying information is sold to someone without my permission does have the potential to affect me.

How often do we hear of data being stolen from companies on the internet? How can i control where my data is, and keep relatively secure if it's being traded around without my permission?


Reminds me of the latest blunder concerning Sony.
Javinator
not rated yet Apr 28, 2011
About this, I agree. I'd even prefer targeted over random if I'd have to choose. But no ads is best.


Agreed about no ads at all as long as one is willing to pay (as you said you do for PhysOrg) for the ad-free website.