[Infowarrior] - Facebook Sells More Access to Members

[Richard Forno]

	• TECHNOLOGY
	• October 1, 2012

Facebook Sells More Access to Members

http://online.wsj.com/article/SB10000872396390443862604578029450918199258.html?mod=WSJ_hpp_sections_tech#printMode

By GEOFFREY A. FOWLER

Facebook Inc. is experimenting with new ways to leverage its greatest asset—personal data on about 900 million people—reigniting concerns about privacy. The strategy: selling access to its users.
 
Facebook is experimenting with new ways to leverage its greatest asset-personal data on about 900 million people-reigniting concerns about privacy. Geoff Fowler reports on digits. Photo: Getty Images.

To amp up the effectiveness of its ads, Facebook in recent months has begun allowing marketers to target ads at users based on the email address and phone number they list on their profiles, or based on their surfing habits on other sites.

It has also started selling ads that follow Facebook members beyond the confines of the social network.

Rankling privacy advocates most, Facebook is using its data trove to study the links between Facebook ads and members' shopping habits at brick-and-mortar stores, part of an effort to prove the effectiveness of its $3.7 billion annual ad business to marketers.

Facebook hasn't said which advertisers participate in the studies. In principle, they allow a marketer like a shampoo maker to learn, in aggregate, how much viewing an ad on Facebook increases sales across a range of retailers.

Facebook is making the moves, which show some early success, as it faces investor pressure to become a bigger player in digital advertising.

But in doing so, the Menlo Park, Calif., company treads a fine line between using consumer data to attract marketer dollars and living up to its promises to users and regulators to keep that data private.

"We have been working to make it easier for marketers to reach the right people at the right time and place," said Gokul Rajaram, who manages Facebook's ad products. He added the latest ad changes are done "in a way that respects user privacy."

Facebook executives including Chief Operating Officer Sheryl Sandberg are trumpeting the social network's latest offerings to Madison Avenue during Advertising Week events this week.

Many of Facebook's new services echo ad-targeting capabilities that companies such as Google Inc.     and Yahoo Inc. have offered for years, and Facebook said it takes pains to follow industry data practices.

Facebook maintains it doesn't sell data about individual users to advertisers, or even let them directly see the data. But privacy advocates say Facebook deserves special scrutiny because it has in many cases more personal information about people's real identities than other Internet companies, raising the potential for abuse.

At the core of Facebook's expanding ad strategy is the fact that the social network knows a lot about its users' true identities. While Google largely makes inferences about people based on their searching and browsing habits, Facebook is built on people volunteering personal information that's valuable to marketers, including names, friends, phone numbers and tastes.

In September, Facebook began allowing marketers with their own lists of email addresses and phone numbers to target ads at specific groups of Facebook users of at least 20 at a time. Facebook matches up that outside data with information users have entered into their profile.

A clothing store, for example, could use the service to target customers based on their past purchase habits, or a bank could target ads just at customers with high bank balances.

Over the summer, Facebook also began using its identity data to experiment with selling ads on other websites and apps.

Facebook recently began placing ads on game site Zynga .com, for instance, and in September announced it would begin placing ads on third-party smartphone apps. In both cases, it can target ads to specific people because they're logged in using their Facebook accounts.

Analysts think the experiments point to Facebook eventually establishing its own advertising network, making Facebook ads omnipresent across the Web and smartphones.

Mr. Rajaram said the company is still testing how well the ads on outside sites work. Zynga Inc. declined to comment.

User data is also helping Facebook bolster the sales pitch about the effectiveness of its ads. In August, the social network disclosed it was working with data-mining company Datalogix to track whether seeing ads on Facebook leads users to buy more products from those advertisers in physical stores.

Datalogix collects information from retailers about what products customers buy in stores, and works with Facebook to compare that to email addresses and other data about Facebook users to understand which of those people may have seen Facebook ads for particular products.

 
Whether you are bullish or bearish on Facebook, you must ultimately focus on the company's quest to obtain eyeballs. MarketWatch's Jon Friedman looks at how the company can add to its already eye-popping world-wide roll of 955 million users. (Photo: AP)

The tests, which have run on nearly 50 Facebook ad campaigns, show that in 70% of cases, $1 spent on Facebook advertising leads to $3 in incremental sales, Facebook said.

Privacy experts said Facebook's actions, while not unusual in the online ad industry, deserve special scrutiny.

Last week, the Electronic Privacy Information Center filed a complaint with the Federal Trade Commission over Facebook's new business practices, particularly its relationship with Datalogix and an ad-buying service called Facebook Exchange.

For years, Facebook users have known they "might be targeted based on what they posted online, but that was separate from what you did off of Facebook or in the real world," said David Jacobs, EPIC's consumer protection counsel. "Now the rules have changed and this information is being matched or cross-referenced. There is an issue with changing the rules on people."

EPIC said Facebook had violated a settlement the company made with regulators in July that requires the social network to clearly disclose and obtain consent from users before sharing information with a third party. EPIC says the FTC hasn't responded publicly to the complaint. A Datalogix spokesman said the EPIC complaint is without merit.

Facebook said it is confident it is compliant with its legal obligations. In the process of matching up the data with Datalogix, it said, both sides obscure their data from the other so they can't use it to build profiles of people.

The retailers and the advertiser don't get data about individual Facebook members—they only get a PowerPoint file with aggregate data about the effectiveness of a campaign.

"We believe our business model is fully compatible with honoring privacy," said Facebook's chief privacy officer, Erin Egan.

The open question is whether Facebook users will find the services unsettling enough to stop using the site. Facebook executives said users click on better-targeted ads—which is a sign that they like them.

Some of the new ad tactics are showing success.

Online retailer Shoebuy, a unit of IAC/InterActiveCorp, over the summer participated in a test that allows marketers to show ads to Facebook users based on what they've looked at elsewhere online.

Using Facebook Exchange, Shoebuy placed ads on Facebook.com only to members who recently viewed shoes on its site. In some cases, the ads featured shoes they had looked at on Shoebuy.com, a practice called retargeting.

To target Shoebuy's ads, Facebook didn't track the shoppers itself. Instead, third-party marketing company TellApart Inc. identified when Facebook members recently used their browsers to also visit the shopping site. TellApart then acts as an ad broker, offering to buy ads targeting those people.

In the process, neither side swaps personal information, these companies say.

The result was impressive, said Shoebuy Chief Marketing Officer James Keller. While he declined to say how much money his company spent, he said the ads provided at least a seven times return on investment.

Previously, Facebook "has not been the best place for us to advertise," he said. "Now we are taking whatever inventory we can in the Facebook Exchange because it is working."

Write to Geoffrey A. Fowler at geoffrey.fowler at wsj.com


A version of this article appeared October 2, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Facebook Sells More Access to Members.