Social networks are sitting on a treasure trove of personal data in the form of profiles chock full of information about the people who use their sites. These sites are quickly finding ways to turn this data into sources of income by giving advertisers opportunities to use it for targeted marketing.

This explains why a week after consumer groups asked the Federal Trade Commission to look into youth-oriented marketing at social networking sites, Facebook and MySpace, the two largest social networks, announced plans to give advertisers better tools to reach their predominantly youthful audience.

Much of the data is supplied by social network users themselves--age, gender, ZIP code, phone number, schools--and other information is generated by users' actions, such as lists of friends and groups they belong to. This data is used to segment the audience into specific categories--drinkers, sports enthusiasts, and so on--for targeted marketing.

What makes MySpace and Facebook data so valuable to advertisers is that it provides insight into the habits and affinities of the audiences, which skews toward the desirable youth demographic.

Facebook's new social approach to advertising, called Facebook Ads, lets advertisers "target exactly who they want based on how people affiliate themselves," says Chamath Palihapitiya, Facebook's VP of product marketing and operations.

For example, a restaurant called Junnoon has created a Facebook page that lets users make reservations. When a customer does so, the person's Facebook friends get alerted through the social newsfeed, and Junnoon has the option of buying a sponsored message to accompany that notification.

No user data is shared with advertisers using Facebook Ads. However, third-party developers who create applications for the Facebook platform can make use of social data, using an application called Facebook Beacon.

Fandango uses Beacon to let movie ticket buyers share their entertainment plans with their friends on Facebook. Users can opt out of Beacon's information-sharing system, Palihapitiya says. Facebook doesn't provide a way to opt out of social ads.

Third-party developers that create applications for the Facebook platform also can access and share data about users, depending on their privacy settings, including personal data, though not contact information.

Users can opt out of this sort of data sharing, but there's a catch. While Facebook says in its privacy policy that it has taken steps to restrict possible misuse of such information, "we of course cannot and do not guarantee that all platform developers will abide by such agreements."

User beware.

Illustration by Richard Downs

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