New ad outfit targets social-networking sites

Information in a user's profile may or may not indicate that they intend to buy something, but companies are willing to experiment.

By Yi-Wyn Yen, Fortune

(Fortune) -- Figuring out how to sort through personal profile pages to target ads has become a top priority for both MySpace (Charts, Fortune 500) and Facebook. But in the new California gold rush to turn valuable information that people reveal about themselves into advertising dollars, lesser-known social networking sites are getting left behind.

Next month entrepreneur Scott Rafer plans to launch a new ad network, Lookery on the Web, that will rent out data it gathers from smaller social networks and market it to developers and other companies.

"Getting this kind of data is a marketer's dream. What we do is aggregate the data to show, say, women in their 30s who live in San Francisco with pets," says Rafer, Lookery's CEO and co-founder. "Getting a more detailed understanding of who your customers are makes your business healthier."

Lookery, which started as a Facebook-specific ad network in July, may soon be competing with Facebook at its own game. Mark Zuckerberg's startup reportedly plans to kick off its own ad network this fall to let advertisers target Facebook users. Lookery suspects that Facebook will go a step further and rent out its demographic statistics to other sites, meaning what happens on Facebook won't stay on Facebook for long.

"This is what everybody believes they're working on. If Facebook wants to be the next Google, they're going to have to make a lot more money than they are now to take the company public," says Rafer, the former CEO of MyBlogLog, which was acquired by Yahoo (Charts, Fortune 500) for a reported $10 million in January. "If this is how Facebook is going to monetize, we need to get in the game, too."

Lookery and Facebook both hope a better understanding of the general behavior of social network users will help advertisers target the right online audiences. But not everyone's convinced that jumping on the behavioral targeting bandwagon will lead to significant profits.

"The profile information that's available on Facebook or any other social networking site doesn't mean your click through rate will be higher," says Andrew Chen, an entrepreneur-in-residence at Mohr Davidow Ventures. "It's really important to not confuse, 'I'm interested in cars or skiing,' versus 'I'm about to make a transaction.'"

Of course this hasn't stopped major players from following Facebook's lead. MySpace is developing new software to allow customized ads for its 110 million active users. Microsoft (Charts, Fortune 500) is considering buying a 5 percent share of Facebook, and last week TechCrunch reported that Google (Charts, Fortune 500) plans to unveil an open-source platform for Orkut and iGoogle in November to compete with the top social networks.

So while the major players are busy gathering data on their own users, Lookery plans to hit up sites like Bebo, Dogster and Hi5. Lookery, which has served 250 million ads on Facebook since it launched in July, has no plans to run ads on other social networking sites.

Instead, it will pay the sites to collect its social network data and then sell it elsewhere. Says Rafer, "It starts off as worthless data. But when you put it all together, it turns into something really valuable." Top of page