Facebook (NASDAQ:FB) started displaying ads on Zynga.com (NASDAQ:ZNGA) last week as part of a revenue sharing partnership. This could be part of the initial roll out of Facebook’s ad network, which uses Facebook’s user data to target personalized ads and sponsored stories on other websites. Facebook’s new social ad network would compete directly with Google‘s (NASDAQ:GOOG) AdWords, which relies on users’ search queries to target ads. While Google delivers ads based on what you’re looking for, Facebook has the technology to deliver ads based on who you are. 
Facebook already uses social indicators and data points of its users to deliver targeted ads on Facebook.com. With this new ad network, it could extend the same to other websites and generate a significant amount of revenue by charging a cut off every ad sale before handing off the rest to the publishers.
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While there could be a massive privacy backlash following the launch of such an advertising system, Facebook could offer an option to users to opt out of social targeting to alleviate their worries.
This could be a huge opportunity for Facebook, which generates a major portion of its revenue from social advertising. Social advertising could be the best thing since
search advertising, which is Google’s forte. This is exactly why Google is so scared of Facebook, and is desperately trying to get a hold of the social space with Google+.
Facebook has stated that this arrangement is exclusive to Zynga for now, given its long-term partnership with the social gaming giant. However, if it delivers results, we expect Facebook to eventually roll it out as a standalone social ad network.
We currently have a $33 Trefis price estimate for Facebook, which stands just above its market price.Notes:
- First hints of a Facebook ad network: Sponsored Stories appear on Zynga.com, Inside Facebook [↩]