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With more than a half a billion users, Facebook knows an awful lot about an awful lot of people. And all the data it collects is no doubt a gold mine.

But sitting on a gold mine and actually being able to extract the gold are two very different things. Although Facebook's revenue has grown rapidly, its effectiveness at monetizing each of its users lags well behind other prominent internet companies like Google.

In its quest to leverage all of its data to build more effective advertising offerings, Facebook has frequently found itself in hot water. Take Social Ads and Project Beacon, for instance. They "combine[d] social actions from your friends – such as a purchase of a product or review of a restaurant – with an advertiser's message." The result: a privacy uproar.

Now, Facebook is taking the same concept and applying it to activities within the News Feed. Post a status update about Starbucks, for instance, and Starbucks can pay to turn the note about your coffee run into a Facebook promotion. Like Coca-Cola and Coca-Cola can turn your click into an advertorial. For insecure brand marketers wanting to create a virtual testimonial every time a customer mentions them, Sponsored Stories may seem like a perfect ad offering.

There's just one problem with all of this -- Sponsored Stories seemingly runs afoul of the same laws that critics argued made Social Ads so problematic:

Common-law privacy torts...forbid someone from appropriating the name or likeness of another, and several states -- including New York and California -- have such laws. New York, for example, forbids the use of a person's "name, portrait, picture or voice" from being used for advertising purposes without the prior written approval from the person.

As George Washington Unversity law professor Daniel Solove noted back in 2007, "It seems as though Facebook might be assuming that if a person talks about a product, then he or she consents to being used in an advertisement for it. But such an assumption might be wrong..." Here, Facebook is doing exactly that; it assumes that a like or checkin, for instance, constitutes consent to feature a user's name and likeness in an ad.

According to AdAge, "users...will not be able to opt out of having their action turned into an ad and having that broadcast to their connections on Facebook." If true, this almost certainly won't help Facebook, which is already facing a lawsuit in California claiming its 'like' buttons violate a California law forbidding anyone under the age of 18 from consenting to the use of his or her name or likeness for an endorsement.

Facebook, of course, is no stranger to lawsuits. Project Beacon -- the key component of Facebook's Social Ads -- was shuttered as part of a class action lawsuit settlement. The class action was originally filed over similar privacy issues. So it seems inevitable that class action attorneys will be looking for lead plaintiffs for yet another class action lawsuit, if they're not already.

Which begs the question: will Facebook ever decide that trying to turn its users into breathing advertisements is a fruitless exercise? The answer: so long as blue-chip advertisers are willing to buy into every ill-conceived ad offering Facebook creates, no.

Photo credit: steakpinball via Flickr.

Patricio Robles

Published 26 January, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2378 more posts from this author

Comments (5)

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Jenni

Although Facebook's ads and ad ideas are pretty terrible, nothing can compare to how horrendously Twitter is dealing with their platform so far. At least Facebook uses a bit of intelligence.

over 5 years ago

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Eddie

@Jenni- you're not kidding... Twitter is really messing this up bad.

over 5 years ago

Peter Leatherland

Peter Leatherland, Online Sales Manager at Ethical Superstore

Problem with this is when people mention a brand they don’t always say nice things, if it is done through check ins you could ruin a McDonalds Facebook campaign; you check in and say you have eaten a rat burger, your comments then become part of Ronald’s marketing campaign :-)

over 5 years ago

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Ronald McDonald

It wasn't rat, it was diseased civit cat brain. Just sayin'.

over 5 years ago

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Ed French, Managing Director at GDM Digital

I think facebook are very naieve to think this will all be natural likes, and comments. There'll be some internet startup company soon who'll be able to like and share things to build a brand in the sponsored stories.

over 5 years ago

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