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Facebook goes from hangout to business

Now that Facebook has unveiled plans to target advertisements by injecting them into its members' conversations, the popular online hangout must persuade its users to embrace the initiative.
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Facebook CEO and founder Mark Zuckerberg speaks to press and advertising partners at a Facebook announcement in New York Nov. 6. The online hangout said Tuesday it plans to let companies target their advertisements on the site.Craig Ruttle / AP
/ Source: The Associated Press

Now that Facebook has unveiled plans to target advertisements by injecting them into its members' conversations, the popular online hangout must persuade its users to embrace the initiative.

Facebook is giving users some control over whether to share information on their buying habits and other online activities with friends. For the program announced Tuesday to work, enough users must actually say "yes" so advertisers can show users their pitches in the guise of friends' endorsements.

David Hallerman, a senior analyst at the research group eMarketer, warned that users might not be as receptive to ads when they are communicating with friends on Facebook as they might when they are reading articles elsewhere in a more relaxed, consuming state.

"Facebook is everyone's darling today," he said. "If there is a perceptual problem as a safe place for communications, then will it be 2009's darling?"

Facebook's announcement follows by two weeks Facebook Inc.'s deal to sell a 1.6 percent stake to Microsoft Corp. for $240 million, valuing Facebook at $15 billion. Microsoft also broadened a marketing relationship that began last year. The ad program announced Tuesday was unrelated to either deal with Microsoft.

In announcing the initiative, Palo Alto, Calif.-based Facebook has begun transforming itself from an online hangout into an online business district. Companies can now create their own pages on Facebook for free and tailor their pitches to the activities of users' friends.

For example, if a friend has booked a vacation on Travelocity, the online travel agency will be able to display the friend's photo as part of a "social ad" to entice the user to buy flights and hotel stays. Advertisers can similarly have their pitches appear when friends review restaurants and buy books or DVDs.

Companies can even embed coding Facebook calls "Beacon" on outside sites such as eBay Inc., enabling a Facebook user who lists an item for auction, for example, to generate alert messages for Facebook friends, who may then check out the item.

"People influence people," said Facebook Chief Executive Mark Zuckerberg, who founded the company three years ago. "Nothing influences a person more than a recommendation from a trusted friend."

Although the friend can control what is shared, the user will have fewer choices over whether to receive ads, which would be marked "sponsored."

As Web companies look to boost advertising revenue by offering to target ads based on users' hobbies, interests and behavior, Facebook's move could change the tone of the site and revive privacy complaints it faced last year. Facebook will rely on information in users' profiles and on friends' online activity to determine what ads might appeal to users.

Key will be how Facebook tells users about the program. Facebook described the changes in a blog posting, but not prominently when users logged on Wednesday morning.

"Some people may find it creepy," said Deborah Pierce, executive director of the San Francisco-based group Privacy Activism. "They are trying to find some ways to monetize this and keep the lights on. If the disclosure is up front, yeah, I think this is a reasonable thing for them to do."

Facebook has long prided itself on guarding its users' privacy, but the walls have gradually lowered. A feature allowing users to track changes their friends make to profiles backfired when many users denounced it as stalking and threatened protests. Facebook quickly apologized and agreed to let users turn off the feature.

Facebook promises no information that could identify individual will be disclosed to advertisers. And Chris Kelly, the company's chief privacy officer, said users can complain again if they find the new targeting program intrusive.

Privacy concerns aside, many Facebook members may be reluctant to endorse an advertiser for fear of alienating friends who had bad experiences with the same company, said Chris Winfield, who runs 10e20, an online marketing specialist.

"They are relying a lot on their users to make this happen, and that's going to be tricky," Winfield said.

Zuckerberg said marketers must respond to the changing nature of communication.

"Pushing your message out to people is no longer good enough," Zuckerberg told about 200 advertising-industry executives, many already in New York for the ad:tech conference. "You have to get your message out to the conversations."

Search companies like Google Inc. have generated a lot of revenue from text-based ads targeted to a user's search terms. Those have been good at fulfilling demand — users often are already looking for a car or a travel package when searching and seeing those ads.

Zuckerberg said Facebook planned to go after the bigger opportunities in generating demand — something Google and other sites are also trying to do through display and other brand promotions. Seeing a friend buy a product or praise a band, he said, are good ways to generate demand.

Coca-Cola Co., General Motors Corp.'s Saturn and Sony Corp.'s Sony Pictures are among leading brands contributing to the more than 100,000 company pages launching on Facebook.

The key difference between companies' pages and individuals' is that businesses won't have access to individuals' profiles the same way their friends do, even when users formally declare themselves "fans" of a company.

Facebook's announcement came a day after MySpace said it would expand its targeting program to include more categories and more advertisers. MySpace lets companies create profile pages but doesn't have Facebook's system of alerts and adjacent social ads.

Zuckerberg told reporters he wasn't worried users would consider Facebook too commercial. He said regular ads would stand out more because targeted ads can be better integrated with conversations users are already having with one another.