So This Is Facebook's Genius Ad Strategy

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Facebook has figured out an ingenious way to capitalize on all that social sharing, finally giving its ad model the edge it needs to impress advertisers and prove the company is worth something.

You ready for this? Using some sort of auto-generation algorithm, Facebook lets advertisers put users' goofy smiling faces next to items they "liked." So, an example we get via The New York Times' Somini Sengupta, Facebook user Nick Bergus got his face and mocking "like" turned into an Amazon endorsement for... a 55 gallon tub of lube. This is what Facebook calls a Sponsored Story, which it introduced back in January. "They let advertisers take these word of mouth recommendations and promote them," the promotional video explains. But, as Sengupta details, the system hasn't played out as Facebook envisioned. People often "like" things not as endorsements, but as jokes or while drunk or by accident or with irony. So, instead of a person's face next to their favorite café, we get Bergus' face next to a monster tub of "Passion Natural" lube.

Considering Facebook's failing IPO has a lot to do with its not-so-trustworthy advertising model, this scheme seems like just the thing the social network needs to prove itself. Unlike Google or other Internet places where advertisers would put their money, Facebook can point to the personalized friend recommendations that happen via "likes." Sponsored stories capitalize on Facebook's unique "social value," operating under the theory that peer endorsements attract customers more than some anonymous ad on the side of the screen. In theory this makes sense. Facebook told investors users are 50 percent more likely to remember an ad if it comes through a friend, notes Sengupta.

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But in reality, we see that "likes" don't always equal endorsements, which can end up alienating users—and undermining advertisers. In addition to Bergus, in a separate article in The Times found four other users whose faces showed up next to brands without their knowledge. Out of the four, one appreciated acting as an endorsement for a company, Brooks Brothers in his case. "I actually like the idea of being featured in an ad. People who value my opinion can take my word and check out what I have liked. I like to see who in my social network is interested in the same stuff as I am, and vice versa," Denzie Batulan told The Times. The others found it "creepy and even annoying" and "off-putting."

Facebook has struggled with the balance between user experience and appeasing advertisers as it has gone public. It needs to make money, but making money often compromises user experience or privacy. Advertisers, of course, like the sponsored story plan. A 1-800 Flowers marketing executive told Sengupta the personal touch had brought more eyes to their official page. "Our experience is that people love hearing stories of other customers," Amit Shaw said. Not to mention the whole thing takes little effort (or money) on behalf of these companies, who don't have to do much to create these ads. They just wait for the 'likes' to start coming in. But, as it irritates users some, like Melissa Elliot, will just go and 'unlike' the item, which means no more sponsored ad, defeating the whole purpose. It might even change our liking behavior altogether, as these weird non-endorsement endorsements get more publicity, giving users pause before they jokingly 'like' a giant tub of lube. And, the most offended might just take this as just another reason to quit the service altogether. Facebook has put itself in a tricky situation, it can't really afford to offend its users, because its users are its product. Without 'likes' it's just another website with ugly Web ads.

This article is from the archive of our partner The Wire.