For marketers, so-called social ads, which display data and actions from social-network members, can be either gold mines or landmines.
Whether these ads deliver a treasure or an explosion depends on social-networking sites and marketers following best practices, which the Interactive Advertising Bureau (IAB) has outlined in an 18-page document.
Above all, site publishers and advertisers must be radically clear toward social-network members regarding social ads and give these people full control over the use of their information, according to the IAB.
After all, social-network members enter personal information such as their age, occupation, location, tastes, whereabouts and musings in order to stay in touch with friends and family, not necessarily to help a vendor promote its products and services.
It has become obvious that conventional online ads, like banners and pay-per-click text ads, don't work as effectively in social networks as they do in other sites, like search engines and Web portals. The reason is that when they are in a social network, people are engaged in activities, such as communicating with friends, that make them less receptive to these ads.
Consequently, companies like Facebook and MySpace have concluded that an ad format for social networks had to be developed, which is how the concept of social ads came about. In theory, social ads attempt to interact with social-network members by, for example, having them answer a poll question about their product.
The member's response is then broadcast to the member's peers in the form of an ad. The idea is that ads that engage members and that have been endorsed in some way by a friend are more likely to resonate in the context of a social-networking site.
"The combination of improved targeting of ads with social ad content and social response mechanisms is potentially transformative for online advertising. However, a high degree of transparency and control needs to be given to individuals on social sites given that this entire capability rests on the data they have explicitly provided to the social site," the IAB Social Advertising Best Practices reads.
To increase the likelihood that members will agree to let advertisers use their personas to hawk their wares, social-networking sites must explicitly state how their social ads use members' data and make participation an opt-in process.
In addition, for members who agree to being in social ads, marketers must show these people a preview of the ad and let them select to whom within their circle of contacts the ad will be distributed. Then members must be asked for their final approval to release the ad, according to the IAB.
It's also a good idea for site publishers and marketers to spell out the benefits that members will enjoy from participating in a social ad, which could include special offers for relevant products.
However, as Facebook found out shortly after its big introduction of its social ads in November 2007, social ads can backfire in a big way if people find them intrusive, stealthy and confusing. This is what happened with the Beacon component of the Facebook social ads, and the company suffered a brutal privacy backlash.
While the IAB did a good job with this guidelines document, it remains to be seen whether enough social-network members will be willing to participate in social ads, even when publishers and marketers adopt all the recommended provisions, privacy safeguards and best practices, an analyst said.
"The jury is still out on whether consumers will participate in large scale with some of the ideas the IAB is promoting in its definition of social ads," Andrew Frank, a Gartner analyst, said.
"You're asking consumers to go beyond their traditional roles of being passive observers [of ads] and instead participate in the advertising process, which isn't necessarily a natural or mass behavior at this point."
Even with the trend for ad micro-targeting, the success of advertising campaigns still depends largely on their reach and scale.
"If not enough people participate in social ads, then it's questionable whether it's worth bothering," Frank said.
Moreover, it's also not necessarily true that social ads by definition pack more authenticity because they carry the endorsement of friends, he said.
"I'm not sure it's so easy for everyone to buy that, even with all the disclosures and transparency."
This point gets cloudier with the question of whether people should be rewarded in some way for agreeing to participate in social ads by the site publishers or marketers, Frank said.
The intrinsic value of someone's endorsement of the product is that their motivation is supporting a brand they like without having to be incentivized to do so with compensation.
"There's a fine line between expressing your views and being part of a marketing campaign in which you expect to be compensated," Frank said.
"That's one of the big questions: How does compensation enter into the world of social media without corrupting the conversation?"