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Updated: Facebook Timeline And Ads: Real Estate For The Highest Bidder?

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A report out today, taking its cue from the new Timeline feature that is now getting rolled out to Facebook’s 800-million-plus users, alleges that Facebook will be using its new homepage format as a new vehicle for selling advertising. The question, however, is whether this is actually a development beyond what we already know of Facebook’s existing plans for sponsored content and advertising.

The report, penned by an unnamed “former CTO” as a guest post in Beta Beat in the New York Observer, describes Facebook’s approach to how it will place information into your new Timeline as a form of “payola,” the system once used by radio stations where they played music based on which labels paid them the most for the privilege.

The post was published partly in response to a page Facebook itself has created for users that provides explanation of how its advertising services work, titled “About Advertising in Facebook.” That page does not make any reference to how and if advertising will appear specifically in the new Timeline.

However, in the Beta Beat article, the implication is that Facebook will be using that Timeline as yet another ad vehicle, not just another way of presenting to you and others what it is that you do. It will work by using (and selling? that’s what Payola seems to imply) information about how you use Facebook, through an algorithm it calls “Graph Rank” (basic description of how it works here). That will include direct payments to the social network via Facebook Credits for games credits, watching premium videos and other content.

It’s unclear whether it will also include content from the comments you make in our own status updates: for example, does a recount of a recent trip to Monterey Aquarium trigger tags for fish, tourist attractions in a given region, or ecological charities?

Up to now, Facebook has made it pretty obvious — if not exactly easy to understand how — it makes a significant part of its revenue through marketing and advertising activities.

What seems to be the crux in this article is that Facebook hasn’t been making it very clear so far to its users that its newest innovation, the Timeline, will also be a part of this business model. Yet Facebook has actually been briefing brands to this effect. The ex-CTO writes:

“What most users don’t know is that the new features being introduced [in Timeline] are all centered around increasing the value of Facebook to advertisers, to the point where Facebook representatives have been selling the idea that Timeline is actually about re-conceptualizing users around their consumer preferences, or as they put it, ‘brands are now an essential part of people’s identities.'”

As Gigaom points out, should that really come as a huge surprise to users, given all the controversy that has already appeared around Facebook, its advertising services and privacy? That could be an insiders’ view, however. Do most of the 800 million users of the social network realise this? Do they care?

Update: Atlantic Wire has a response from Facebook: there is nothing new in this report. “Timeline doesn’t change anything for advertisers because we don’t share anyone’s personally identifiable information with advertisers,” a spokesperson told the blog. “Like with all products, we try to help advertisers understand how they work, but this is nothing new.” [original post continues below]

So far, the privacy controversies have resulted in settlements with regulators in the U.S. and elsewhere to make its practices more clear. And they could already be leading to lawsuits for the company.

We have contacted Facebook for a direct response to this story. It seems that at the least if these allegations continue to persist, we may either be seeing one more clarification in that “About Advertising on Facebook” page, or perhaps one more tweak to how that Timeline really ends up looking and behaving.