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New advertising strategy is a big gamble for Facebook

The company is proceeding with caution in an attempt not to irritate its fickle user base, but it nevertheless still runs some big risks with its new advertising program.

NEW YORK--When Facebook founder Mark Zuckerberg spoke to a room full of reporters shortly after announcing the company's new Facebook Ads initiative, it became clear that this move is a risky one. Facebook Ads, with its focus on "trusted referrals," is heavily rooted in viral distribution tactics. And it's well-known by now that while a viral phenomenon can reach soaring levels of popularity, it can also become synonymous with in-your-face annoyance.

Zuckerberg was insistent that Facebook users will appreciate the fact that they'll be seeing advertisements that cater specifically to their interests and that showcase recommendations from their friends. "It seems like people prefer targeted ads. They just perform way better," he said. "The point that we're trying to make today is that it's way more organic and natural."

But there are questions--some big ones. One reporter voiced skepticism over the fact that because they're advertisements, the "trusted referrals" will only extend to positive reviews, whereas a major component of real-life recommendations among friends is what not to buy.

Perhaps more troubling is the fact that if you sign up as a "fan" of an advertiser group on Facebook--a brand of sneakers, for example--your name will automatically run alongside "Social Ads" for that brand in your friends' profiles, and Zuckerberg said that there's not yet a way to opt out of that.

"This is the first iteration of this," the Facebook founder assured the press as he explained that since Facebook Ads is new, the company could potentially change that no-opt-out policy for being a "fan" of a group. "When we announce a product, we want to also launch it (but) I wouldn't say that what we're launching today is the final version."

He promised that the company would act quickly if any concerns arose.

Forrester Research analyst Jeremiah Owyang emphasized that Facebook is still being very careful. "User backlash should be low for a few reasons," he said. "One, only two Social Ads display per day, (and) two, since users have become fans of a brand (opt in) they personally endorse, they ask for it." Essentially, they're getting what they're paying for, Owyang said in an e-mail interview with CNET News.com. "Since there's already ads on Facebook (flyers, banner ads, and sponsored groups) this is nothing new to a system where the features are free."

To add to Facebook's caution, the launch partners in Facebook Ads are also conscious of the potential for backlash. One of them is Sarah Chubb, president of Conde Nast's CondeNet Web division, which will be debuting tie-ins for its Epicurious and Flip.com brands on Tuesday night. "Anyone who was in that room today who's participating in this thing has probably thought very hard about that," Chubb said of the launch event in an interview with CNET News.com. "What's going to be interesting for anybody who's using the service as an advertiser is figuring out which kind of messages get the best reception--I think any one of us would risk alienating people."

But Chubb is ultimately optimistic. "We're advertising our sites and ultimately probably our magazines as well, and our sites are based on very vertical categories of interest like food and travel. Because those are sort of the things that people like to badge themselves with and share on Facebook anyway," she said, "we think that we don't run much risk."

Speaking with the press, Zuckerberg also answered questions about exactly what Microsoft has to do with Facebook Ads in light of its $240 million stake in the social network. The answer: not much. Redmond will be providing the "non-social" advertisements that will remain on the site.

"Microsoft is the exclusive third-party provider of IAB (Interactive Advertising Bureau) standard ads on Facebook. This program that we're launching, it's just a different format--they're not IAB-standard ads." Zuckerberg added that Facebook had worked the situation out with Microsoft. "We think it's a different kind of advertising."

Forrester analyst Owyang says there's no reason to suspect this wasn't the plan all along. "It's my understanding that Microsoft will continue to do what they do well--sell banner advertising and visual banners on Facebook," he said. "This has little impact to their current relationship, although it would make sense for the Microsoft Sales team to be selling these additional products to their clients. In some cases, expect banner ads to be used in a coordinated method with social ads."

At the conclusion of Zuckerberg's meeting with the press, the question arose about Google's OpenSocial platform, which has been described by some as a "Facebook killer." But the Facebook founder said it hasn't caused them to lose much sleep. "We've been so busy with this launch that we haven't had time to really look at that," he said. "We'll see after it launches."

Zuckerberg paused. "They're working on some issues."