Yesterday, Michael Barrett, Chief Revenue Officer for Fox Interactive Media, gave what was probably the most delicious announcement of his life. FIM, of course, owns MySpace, and the announcement in question was the early results of their ‘hypertargeting’ ad program: a 50% to 300% gain in click-through rates for participating advertisers and a 50% gain in CPM rates.

Almost more importantly, the company managed to pull the stunt off without incurring any of the “How dare you betray me?” response generated by Facebook’s Beacon.

Mark Walsh at Online Media Daily covered the story today. The privacy issue came up right from the beginning of the article:

“We’ve heard loud and clear there’s a growing desire for regulation for the Internet in general, and now targeting specifically,” Barrett said. “We are going about [targeting] in a very up-front, opt-out way.”

Of course, Facebook performed an about face last Friday, changing from opt-out to opt-in, which requires users to proactively request to participate in the program. It’s unlikely, however, that the move will completely repair the damage that’s been done by the backlash to the ad service, especially when the apology is immediately followed by yet another Facebook Beacon scandal.

You can never underestimate the fragile nature of your customers’ trust, and you can never stop working to continually earn it.

The reason that MySpace’s program is working, while Facebook’s generates resentment, has little to do with opt-out vs opt-in. It’s that people don’t like the program—they don’t like their purchasing info being broadcast indiscriminately.

Users ask for opt-in when they don’t want what they’re getting. When was the last time a Google ad was opt-in? When was the last time you had to opt-in to see ads on any website, for that matter? We’ve been getting targeted ads for years, whether they’re targeted to us personally or targeted to our search queries. A more targeted ad doesn’t shock the system; it makes it better.

The bottom line is that if companies are giving customers what they want and respecting that they are free individuals with independent decision-making capabilities, which way they opt becomes much less of an issue. Facebook got focused on the power of word-of-mouth, and forgot that it doesn’t work if the mouths go away.

The current fluidity with which people can define and destroy a movement, a business, or an entire economy is unprecedented. The days when a company could afford to be contemptuous of its client base are going or gone.

We have seen the future, and it is us. We are the searchers. We are the social-networking platforms. We are the advertisers, the publishers, and the consumers.

And if it is us, it is you. Put yourself in MySpace’s shoes. What would be your single overriding objective for an ad platform? What would define success and what would define failure? And how would your customers benefit?

The New York Times yesterday published a piece by Brad Stone entitled, MySpace to Discuss Effort to Customize Ads. In it, Brad unpicks the vast potential of using profile information to personalize ad service.

…MySpace, the Web’s largest social network and one of the most trafficked sites on the Internet, says that after experimenting with technology over the last six months it can tailor ads to the personal information that its 110 million active users leave on their profile pages.

Executives at Fox Interactive Media, the News Corporation unit that owns MySpace, will begin speaking about the results of that program this week. They say the tailoring technology has improved the likelihood that members will click on an ad by 80 percent on average.

“We are blessed with a phenomenal amount of information about the likes, dislikes and life’s passions of our users,” said Peter Levinsohn, president of Fox Interactive Media, who will talk about the program at an address to investors and analysts at a Merrill Lynch conference in Los Angeles on Tuesday. “We have an opportunity to provide advertisers with a completely new paradigm.”

That’s rather a long quote, so I’m going to repeat the bit that jumped out at me:

…the tailoring technology has improved the likelihood that members will click on an ad by 80 percent on average.

80 percent!

Remember how much everybody freaked out when Panama was shown to improve click-throughs on Yahoo! ads by 10%?

Back then, Jonathan Thaw was saying a 10% increase in click rate could translate into a 5% increase in revenue growth. So, ummm, if 10% equals 5%, then (let me just check my math with Miss Teen South Carolina here), such as, 80% could equal 40%? Which, such as, works out to more than $2 billion at Yahoo! and nearly $5 billion at Google.

I don’t need Don Dodge to tell me that a) this is an overly simplistic translation, b) Google and Yahoo would have to have access to the same extensive bank of personal information that MySpace does for each searcher in order to make it work, and c) I should call him for my math questions and just appreciate Miss Teen South Carolina for her beautiful heart and shiny white smile. No matter which way you look at it, these are big numbers we’re dealing with here.

Brad gets into the privacy issues on page 2:

MySpace also plans to give its advertisers information about what kind of people its ads have attracted. “We want them to leave knowing more about their audience then when they came into the door,” Arnie Gullov-Singh, vice president in the advertising technology group at Fox Interactive.

That is precisely the goal that worries some privacy advocates. They argue that users of social networks like MySpace and Facebook are not aware they are being monitored and that current ad-targeting is only the first step in what has become a huge arms race to collect revealing data on Internet users.

“People should be able to congregate online with their friends without thinking that big brother, whether it is Rupert Murdoch or Mark Zuckerberg, are stealthily peering in,” said Jeff Chester, executive director at the Center for Digital Democracy in Washington.

His organization will ask the Federal Trade Commission, during a planned hearing on Internet privacy in November, to investigate social networks for unfair and deceptive practices, he said.

This is definitely sensitive territory that MySpace is playing in, and they need to be careful. As I wrote yesterday, trust is worth more than gold on the Internet, and an 80% increase in clickthrough will mean nothing if there’s nobody there to see the personalized ads.

The reason this is so tricky is that MySpace members gave up the information in a context that had nothing to do with advertising.

In the NYT article, MySpace representatives were dismissive of the issue:

MySpace and Facebook executives argue that they are harming no one. They say that they are using information their members make publicly available, and contrast their ad targeting with efforts by Yahoo, America Online and Microsoft, whose advertising technologies follow people around the Web and try to deduce what they are interested in based on what sites they are looking at.

I think that’s a dangerous attitude to take, though. Given the potential reward, MySpace would be foolish to back off of a personalization program, but they need to get clear that retaining their audience trumps an increase in clickthroughs. A later comment indicates that perhaps they realize this:

Fox executives also say they are planning on letting users opt-out of the ad-targeting program on MySpace, though it means those members will see fewer relevant ads.

Smart move, but I think they’re doing themselves an injustice if they limit it to a simple ‘On-Off’ equation. We love to buy, but we don’t like to be sold to, and the primary difference is in how much control we have over the process. The more control MySpace gives its users over their ad targeting, the happier the users will be. Imagine a dashboard that offers me the ability to allow ads served based on the groups I belong to but not based on my individual conversations. Or that lets me indicate if I’m in ’shopping mode’. (My boyfriend will tell you that I am permanently in shopping mode, but that’s just not true.)

VortexDNA’s aim is to facilitate highly relevant personalization with complete control and total privacy. That is the triad—those three things are all equally important. It’s clear from the above article that MySpace understands the importance of personalization. I hope they manage to balance the triangle as well.

What do you think about their personalization efforts? Are you a MySpace user? Would you like to see targeted ads or would you feel they were intrusive? I’m eager to get your thoughts.