We’ve been following the Facebook social ad controversy closely because it’s important to the future of advertising — including service provider ad strategies.

Today, Facebook turned its Beacon social advertising program from opt-out to opt-in — on an case-by-case basis. While many Web sites and online advertising approaches rely on tracking users to some extent, Beacon turned that tracking public by publishing the buying decisions that its users made out to their circle of friends. For instance, if a person bought a product on Overstock.com, all their friends would know about it too. The privacy concerns are obvious: what if you bought something embarrassing? Or purchased a holiday gift you don’t want your Facebook friends — including the one receiving the gift — to know about?

This has happened to Facebook before — in fact, successfully navigating a similar privacy brouhaha was crucial in helping the site grow to more than 50 million users. Last year, Facebook introduced its “News Feed” feature — the same capability that Beacon leverages — to automatically alert Facebook users about their friends online activities, such as posting a new photo or commenting on a page. Facebook users protested, and the site added new privacy controls to let users manage the information they shared. Today, the News Feed is a key feature within Facebook — in fact it would be hard to imagine the site without it.

Facebook is clearly hoping a nod to privacy will save Beacon as well. The site, along with participating partners, will require that users opt-in to sharing their e-commerce and off-site activities in their Facebook news feeds on a case-by-case basis. Previously, a pop-up box notified users of a potential data exchange and allowed them to opt-out, but it was small and disappeared quickly and if users missed it the information was automatically published. Facebook said it will not provide a universal opt-out for the feature, ensuring Beacon’s survival but ensuring at least some level of controversy may remains well.

So what’s the big deal? First of all, companies that rely on advertising should be thanking Facebook for continuing to challenge the online privacy status quo. The startup has enough good will to play the guinea pig and see how far it can go before users push back. Such efforts are required to explore the possibilities of advertising online. Facebook also should be applauded for the innovation of ad-related news feeds, which represent a unique new form of word of mouth or recommendation-based advertising, an ad-industry holy grail.

Beacon is an advertising 2.0 experiment we will continue to watch.

Social networks and Web ad networks are — right now — defining the future of Web privacy and personalization, driven by concepts like social advertising and profile sharing.

Influential blogger Dave Winer cuts to the heart of the matter when it comes to the “balance of trust” between users and advertisers, which is really the key issue here, one that is being negotiated out across the Web right now. In a post asking for the ability to control his own personal data, Winer writes:

The leaders of Silicon Valley begrudgingly gave up their view of us as couch potatoes, now they think of us as generators of content they can put ads on (and pay us nothing). We still need to work on that respect thing.

Winer hits the nail on the head. The type of thinking he criticizes is a very heavy-handed grafting of old marketing values onto the new world of Web 2.0.

The Web 1.0 equivalent of this is email spam. Or SEO gamesmanship. It’s taking the golden goose and shooting it between the eyes for a quick meal.

What makes even bad, short-sighted ideas work on the Internet is sheer scale…spam works because if you send out several million emails for almost no cost, you’ll get some level of payback. Gaming search engines works because the pay off is so big and the chance of getting caught is low (and if you are caught, you simply move to the next shady tactic).

Billion dollar businesses — businesses built to last — aren’t built upon such short-sighted ideas. As Winer himself likes to say, the Internet “routes around” problems. If next-generation advertising fails to treat consumers with respect, users will find a way to route around that as well.

We did a quick bit (with a cuts-to-the-point graph) last week that showed how social network traffic had surpassed email traffic. It’s a meme that was apparently in the air, as talk of the end of email and the start of something new was definitely on the agenda this week:

- Slate: The Death of Email

- NY Times: Inbox 2.0: Yahoo and Google Turn Email into A Social Network

- Thomas Hawk: Email, 1961-2007 RIP…Thank God!

- A VC Blogs: Messaging, Not EmailThis is an important trend that’s right in front of all our faces but could be easily missed by Facebook-debunking naysayers.

Communications is moving away from synchronous and one-to-one (phone and even IM) to asynchronous and many-to-many. This messaging occurs over a wide and ever-growing array of platforms. Fred Wilson of A VC lists just some of them:

Instant Messaging
Blogging (each post is a message)
Skyping (text+voice)
Voice Mail Transcription (voice to text)
Twittering/FB status update
Web mail
Web site messaging (FB messages)
Comments on social media
Social gestures (actions in the news feed)
Text messaging (sms)

Writes Wilson: “Messaging is messaging and we all do it in different ways. But the massive evolution of messaging services is creating a big opportunity to rationalize it. ” (emphasis mine)

Think the way to “rationalize it” is the “unified inbox” that we see as the shining example of unified communications? Think again. It’s more likely to be a world in which syndication technologies like RSS publish messages out for all the world to see and consume. The message-maker controls what they send out but the message-receiver has equal control over what they consume.

It’s messy and a real break from the past — but it’s happening in real-time today across the protocol soup of services described above.

Enabling and being a part of that world is the opportunity.

While some may see social networks as fads, from a pure “bits and bytes” point of view this should get the attention of service providers: for the first time last month, traffic to social networks overtook traffic to web-based email services in the UK, according to researcher HitWise.

If you’re familiar with Freakonomics (and the Freakonomics blog at NYTimes.com), you know their “hook”: using statistics to upset the common wisdom apple-cart, from tying reduction in crime rates to the increase in abortion rates to in-depth studies of baby-naming patterns.

In a post of interest to emerging IPTV providers, the Freakonomics blog takes a look at the impact of Internet video on “TV” — which of course these days means MSO- or carrier-provided programming for the most part.

The assumption being examined: if Web music seemingly has crushed the record industry, won’t Web video do the same to the economics of the traditional TV business?

Not surprisingly, they quote a study from a wonky Wharton economist that delivers a different take on the question:

While I find some evidence of substitution of web viewing for conventional television viewing, time spent viewing programming on the web — 4 hours per week — far exceeds the reduction in weekly traditional television viewing of about 25 minutes. Overall time spent on network-controlled viewing (television plus network websites) increased by 1.5 hours per week….

He goes on to say — and this is fairly-accepted conventional wisdom — that Web sampling or catch-up seems to stimulate traditional viewing.

One wildcard here would seem to be the concept of portability. At least part of the success of MP3s and iPods comes from the fact that they deliver a new and in some cases better user experience — all your music in your pocket.

The advantages of the Internet video experience center on on-demand, long-tail content (often free) but it’s hard to say the Internet video view experience is *better.* The emergenc of mobile video viewing, much like on-the-go-music listening, could change the equation.

The strategy many service providers seem to be at least considering takes a page from the Microsoft playbook of “embrace and extend”: offer some form of over-the-top video via IPTV systems with a focus on driving users from that environment to a richer, high-bandwidth-based IPTV experience. In short, the best of both worlds.

Facebook’s social ads launch this week was above all an *advertising* announcement — meaning: the most interesting thing about it is how it helps marketers reach consumers in new ways.

Service providers certainly need to keep an eye on advertising trends, but this isn’t as much a direct competitive gambit as many other Web 2.0 efforts. But I wonder if the ripples across the pond won’t end up being significant and far-reaching.

The premise is simple: Facebook Ads let companies build their own Facebook pages. Users on Facebook can link to those pages as “friends” (yes, brands as friends). The company then sends messages (ads) to that person which are visible through that person’s network of friends. (Curious what a company Facebook page looks like — click on the Verizon page, courtesy of Read/Write Web).

At first blush, it’s an odd construct. Second blush too. Why would anyone do this? Why would anyone do many of the things we all do online?

The power, however, is that it takes the very power viral marketing idea of the “endorser” and puts it on Web/social network steroids. Suddenly, it becomes very easy to recommend commercial products to my friends. And it becomes just as easy to find out what my friends think about certain products.

The system also lets me create “content” about products and share that with my friends. Again, an odd concept. But in this context, content means things like lists or reviews. So for instance, Blockbuster is planning to use the system to enable people to share their list of favorite rentals with their friends, and use that Web of connections and information to drive more rentals.

“Nothing influences a person more than the recommendation of a trusted friend,” said Mark Zuckerberg, Facebook CEO, in announcing the new system. “When people engage your page on Facebook, that’s going to spread information about your brand virally through the social graph.

More than 100,000 companies launched Facebook pages Thursday. Companies launching specific advertising campaigns tied to their new pages included Coca-Cola, Verizon and Blockbuster. In an ad campaign, an advertiser buys the right to append an advertising message to use recommendations and deliver more typical banner ads — but with the twist that the ads will include personal recommendations from Facebook users.

In addition, advertisers can leverage information from a user’s profile — including interests, location, relationship status and more — to further target their pitches.

Forrester Research analyst Jeremiah Owyang has taken to calling these social network recommenders “fansumers” — a play on “fan” and “consumer.” The power for advertisers is that “as consumers share their affinities, brands can advertise using trusted social relationships,” according to Owyang.

It remains to be seen how Facebook users take to having commercial products injected into their friend- and -conversation stream. It may not be as far-fetched as it seems. Consider how we all read Amazon comments or read blog reviews before buying new products today and extrapolate it out across the social network world’s so-called “social graph.”

If Facebook can combine user recommendations with social networks in a way that “fansumers” find interesting and delivers results for advertisers, it may just justify that much-touted $15 billion valuation just yet.

Here’s the trick to playing the “open” game. It only really works if you absolutely dominate and make boatloads of money in a market sector that is NOT open. It’s a close cousin to the “free” game — you only give away razors if you’ve got razor blades to sell.

For Google, its success in generating billions of dollars via its low-friction search and Web advertising engines means that it can afford to “give away” mobile operating system code or support an “open” approach to social media widgets. By virtue of its market share in online advertising, it is already the *de facto* “owner,” or more accurately, the biggest beneficiary if such “open” approaches take off.

Going “open” from a position of strength is also a wonderful way to undercut competitors. In Google’s case, it’s open widgets across the Web vs. open widgets on Facebook and open (and no license-cost) mobile OSs vs. vendor-specific mobile OSs (from Symbian to Windows Mobile to Apple iPhone, etc).

In the telecom space, the balance of power equation for the Open Handset Alliance is as follows: Google can 1) try to negotiate their way onto mobile carrier decks ;2) pursue a viral, off-deck distribution strategy to encourage users to download Google apps to their current phones; or 3) it can try to change the rules of the game to better suit its own needs.

But the ultimate question is: are offerings like OpenSocial and Open Handset Alliance — not to mention offerings such as free-on-the-Web Google Apps or the recently-released IMAP features on Gmail (a capability most email providers charge for) — really “free” if they are tied, even loosely, to Google’s advertising engines, revenue streams and ambitions?

With a stock price over $700 and a market cap that places it in the top 5 (!) of all companies, Google is not in a position to be altruistic (or in Google parlance, “not evil”). They are in a position where they need to give the street good news every 120 days to keep its stock price steady or moving up.

Or as one enterprising blogger wrote following Google’s recent wave of “open” announcements (I can’t find the link, but I’ll add it when I do): when is Google going to “open up” its core search algorithm? I’m sure it would be great to have a slew of applications enabled by open access to that technology….

In the spirit of that query, here’s ten questions we’ll be looking to see answers to as Google’s “open” efforts play out over the coming months, with a focus on the Open Handset Alliance:

1. What specific apps or features will the Android platform enable that other modern mobile OSs cannot?

There was a lot of talk about applications and features you “can’t get on a phone today” but there are vibrant third-party developer markets around Windows Mobile, Symbian, Palm and mobile Java — not to mention that the Apple iPhone SDK will be arriving soon too. Android’s major differentiator would seemingly be: an unfettered development community — but whether that happens or not is a function of ecosystem-forces and that makes it a wait-and-see.

2. If Web apps are so great, why are you also delivering a virtual-machine based runtime environment?

Google talked about a desktop-grade browser in Android and that’s obviously important to fulfill its larger Web-driven goals. But it is also delivering an SDK that will let developers write apps to a “custom VM.” That makes this very similar to Sun’s mobile Java play — open tools, write once-run anywhere apps, etc. So with the iPhone already delivering the Safari Web browser and Java-based phone delivering a VM-based run-time, this isn’t a completely new style of phone app development but rather an alternative one.

3. Who gets to keep the advertising revenue?

Google’s Eric Schmidt made a point of saying the best partnerships in the mobile area will result in all the players sharing advertising revenue — but the devil is definitely in the details here. If Google becomes a strong ad partner with fair terms carriers may be willing to jump in bed with them. If not, carriers are going to want to continue to control on-deck real-estate. Unbelievably (literally, I don’t believe it), Google execs downplayed the advertising angle: “You won’t see a completely ad driven cellphone based on this platform for some time,” Google’s Andy Rubin said. Yes, but that doesn’t mean this isn’t an advertising play at the end, plain and simple.

4. How important is open source for a consumer-facing OS?

Linux has been around forever. Where is the market-changing consumer version of Linux today? Ubuntu? Great software, no market share. Developers write to platforms with market share, plain and simple, open source or not open source. Open source represents a relatively new and occasionally successful business model for attaining market share. But it’s not a guarantee.

5. If Android can’t get distribution, then what?

There was an interesting question on the press call about Android potentially running as a “soft-OS” — an interface that could be downloaded and run as an application on non-Android phones. Google seemed surprised by the question and said it was something they’d look into. That would be a tough path to take. So no distribution, most likely, no Android. So watch what AT&T and Verizon do in the U.S. — will they sign-up to deliver Android phones? As for handset-makers, even Open Handset Alliance partners HTC and Motorola said they will NOT abandon other mobile OSs to focus exclusively on Android. Which means the mobile OS market will continue to shake-out but remain a market with *many* options.

6. Where’s the telco route-around strategy — is it coming as a second wave?

An open source mobile OS is one thing, but the bigger disruptive play would have been to NOT partner with carriers like Sprint and T-Mobile but instead deliver a VoIP-driven device that would rely on Wi-Fi, Wi-Max or new 700 Mhz open access spectrum. This is absolutely something that Google’s various moves in the mobile space hint at. So why not pull the trigger? Because you can’t get market share playing that disruptive card today — and Google’s ad business (how it makes money) is all about share and scale. It’s not about being an alternative to the market share leader, nipping at its heels. It’s about being the leader. That’s a daunting goal to fulfill.

7. Will “forks” in the development road doom Android?

There’s a problem with open — you can’t control where it goes. Android represents not only yet another platform, but a platform that can be tweaked in any direction imaginable. Further, the Apache v2 license upon which Android is based allows developers to make forks in the code and not be forced to make that code public. By comparison, Sun made its Java platform open source but maintains a control over core platform specs through a community process. Even Linux has a “core” that is watched over for compatibility reasons. Will there be different implementations or flavors of Android? Will they be interoperable even as they become differentiated? This is not an insignificant issue.

8. Can you win in the consumer mobile space without enterprise mobile products?

Apple has proven that the likely answer to this is yes — people will buy iPhones even if they aren’t formally supported by their IT department at work. But many of us still get our phones — especially our “smartphones” — through work. So that means phones that do not have enterprise device management and back-office support (including Exchange and Office apps support) will never truly “defeat” phone platforms that do. They’ll have to co-exist. Will someone take the open source Android code and build an enterprise back-end management and security suite to go along with a slick, business-focused front-end application stack? Would IT deploy and support it? We’ll see.

9. What about the iPhone?
This is a biggie. Eric Schmidt is on the board at Apple and is a noted iPhone user himself. The way these two innovators have tackled the mobile market is worth considering. Apple released a phone worth salivating over. Third-party application development — the very value proposition that leads Google’s launch — was not only missing from the iPhone launch but Apple purposely broke third-party app hacks (though a formal iPhone SDK is coming soon). And even that didn’t discourage developers from being excited about the iPhone. So forget the open source code and the carrier partnerships and the 700Mhz wrangling, etc. etc. Watch the developers. If developers whip up a frenzy around Android the way they have around the iPhone, Google may have something here.

10. So what would make Android a winner?

This is just one man’s opinion, but what would make me go out and buy and Android-phone next year? Here’s the quick-list: great, innovative, good-looking hardware; a state-of-the-art user interface, at least on par with the iPhone; a simple, over the air application launcher that lets me add whatever apps I want; a killer application or two, either on-phone or downloadable, that will let me integrate and manage all my communications in a way that truly makes sense (btw, I saw a few apps that meet this description at VON last week — more on that later); and, finally, a rich network environment that gives me cheap minutes but doesn’t limit text, email, wi-fi (and voip-over-wifi) or Bluetooth and lets me move seamlessly between modes.