Facebook Raises Privacy Concerns With Datalogix Partnership

Never a stranger to criticism from privacy advocates, Facebook Inc. (Nasdaq: FB) is now making a controversial move to optimize its advertising revenue by stepping further into comprehensive data monitoring to better understand user behavior and the effectiveness of different in-site advertisements.

According to a Financial Times report on Monday, the social media company is working with Datalogix, a data company that specializes in tracking consumer behavior (particularly in the U.S.) to help track users and assess whether they end up buying the products advertised to them on their Facebook page.

As Facebook continues to face harsh skepticism for its recent struggles at the stock market and a general trepidation about the young company’s IPO being massively overvalued, it is under increasing pressure to show more substantial results in its efforts to monetize its user base in new and more effective ways than it's been able to thus far. As a freemium product -- and the most ubiquitous freemium product on the Internet besides a search engine like Google at that -- Facebook now must prove to investors that its advertising-based business model will be able to support continued growth in revenue.

Earlier this month, the company launched an early version of its new advertising system, known as Facebook Exchange, that was promised to deliver a massive return on investment for marketers. But apparently, that was not enough.

Brad Smallwood, Facebook’s head of measurement and insights, told the Financial Times that the company “kept hearing back [from marketers] that we needed to push further and help them do a better job.”

A Facebook representative speaking to Digital Trends confirmed the company’s partnership, saying, “We are working with Datalogix to help advertisers understand how well their Facebook ads are working. We also do this through our partnerships with companies like Nielsen and comScore and through our own advertising tool.”

Datalogix offers Facebook purchasing data from approximately 70 million American households, data that is primarily drawn from loyalty cards or similar programs at more than 1,000 traditional retailer locations such as supermarkets, grocery shops, and drug stores. The company operates by matching email address and related digital information about customer identity with the person’s Facebook account. Tracking both sides of the equation then allows the company to see whether or not different advertisements had a discernible influence on consumers.

Facebook told reporters that identifying information is made anonymous after it is collected. The data are collected and divided based on whether people saw an ad or not, so Datalogix compiles the total users to report to Facebook and the related advertisers as a metric to analyze the persuasiveness of individual advertisements as well as the targeting mechanisms of Facebook Exchange itself.

According to reports, Facebook and Datalogix have so far measured 45 advertising campaigns. In 70 percent of those measured, advertisers netted an extra $3 over physical retail for every dollar spent on digital advertising.

While advertisers are understandably excited to see any promise of higher returns in a fiercely competitive digital environment, many reflected the same concerns raised when Facebook Exchange was first released, noting that it’s still too early to assess the service’s true effectiveness.

Privacy advocates, meanwhile, have already raised concerns over whether the new practices follow through on the guidelines Facebook set for itself by settling its charges with the U.S Federal Trade Commision. In the original case, Facebook was accused of deceiving users by not keeping promises detailing how their information would be used.

Jeff Chester of the Center for Digital Democracy, a privacy advocacy group, said the current practice, which only opts users out of the advertising studies if they go to the Datalogix website itself, does not give users enough control. Rather, the standard should be that users are invited to opt-in to a research service that cedes more of their personal data to a separate company.

“We don’t believe any of this online-offline data should be used without express consumer approval and an opt-in,” he said.

Facebook, for its part, maintains that it will employ a third-party auditor to guarantee transparency in the new research and development process to better monetize its advertisements.

“We know that people share a lot of information on Facebook, and we have taken great care to make sure that we measure the effectiveness of Facebook ads without compromising the commitments we have made on privacy,” a representative said in a statement to Digital Trends. “We don’t sell people’s personal information, and individual user data is not shared between Facebook, Datalogix or advertisers.”