Posted: Tuesday, November 20, 2012 12:57 PM ET
Earlier this year, Facebook (FB) started asking its users to supply their phone numbers. The social network claimed this would help make their accounts more secure.
Since there is such widespread fear among internet users about accounts containing their personal information being hacked, Facebook users were pretty easily convinced that Facebook had their best interest at heart and was trying its best to secure its users’ accounts.
As it turns out, Facebook had other ideas when it started collected phone numbers. It really should not come as much surprise that Facebook has decided to use the numbers that it collected for its own benefit, specifically to improve its advertising revenues.
One of the biggest problems investors have had with Facebook has been its lack of mobile ad revenues. It has a huge number of mobile users, but no one believed it would be able to monetize its mobile users.
Those fears were partially put to rest following Facebook’s most-recent earnings report, which proved that it could indeed make money from mobile users.
What we didn’t know at the time was that Facebook was using all those phone numbers it collected to improve its advertising. By using the phone numbers of its users, Facebook can now let advertisers serve ads to specific telephone numbers.
It is actually a pretty impressive product. Say, for example, you give your phone number to the cashier the next time you buy some clothes at your favorite retailer. That retailer can then buy Facebook ads targeting former customers. Facebook can match the phone numbers the store collected against it's own phone number database, and pinpoint Facebook users who have shopped at that store.
This gives Facebook a great way to target audiences for its ads, which should make the ads more effictive and allow the company to charge higher rates, boosting the bottom line. That this approach is good for business does not change the fact that Facebook collected the phone numbers under the guise of adding additional security for users. On the bright side, Facebook does hide the phone numbers it matches from advertisers, but that will most likely not mean much to users who feel like they were duped into providing their information under false pretense.
From an investor’s point of view, this is a genius move on Facebook’s part. Anything that the company can do to boost ad revenues, especially on mobile devices is a positive, but was it worth tricking users?
Internet users already are suspicious about turning over their personal information to websites, and it is exactly this sort of trickery that users fear. Too many indicents like this, and users could decide to leave Facebook behind all together.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors.
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