As rival social networking sites MySpace.com and Facebook develop new ad-serving systems, Facebook Inc. has received more attention most of it so negative that the company had to change its strategy.

Meanwhile, Santa Monica-based MySpace, a subsidiary of News Corp., is pushing ahead more quietly with new advertising business models.

MySpace has developed a program that it calls HyperTargeting. The program allows ad placement on the site’s pages that match advertisers’ target audiences. It works by scanning the content of the pages for certain words that advertisers believe would be related to their products. Previously, the pages could only be targeted based on information stated in the persons’ profile, such as age, gender, income and ethnicity.

Matching the ad to content was the breakthrough.

“This is unstructured data comments about the films they like, things they talk about in a blog, that sort of thing,” said Ann Burkart, vice president of corporate communications at Fox Interactive Media, which runs MySpace. “This enhances what advertisers can do based on what people are really saying online.”

The program might clean up the user experience, too. As advertising on MySpace increases, people have complained that their pages feature ads that don’t correspond to their interests.

“One of the common complaints we got was that standard demographic targeting wasn’t enough. People were annoyed by cell phone ads that didn’t apply to them, for example,” said Burkart. “This should work better for both users and advertisers.”

The MySpace HyperTargeting program differs from Facebook’s new ad model because it centers on content that people post. Facebook tracks people’s Internet behavior and the products they buy, then forwards that information to other posters. For example, if a Facebook member buys a book through Amazon or another e-tailer, the program will tell the member’s contacts what book that person bought. It’s called the Beacon system and it sparked complaints over privacy.

Previously, Internet advertisers tracked users’ clicks and placed ads on that basis, but did not release the information to other members of a social network.

HyperTargeting utilizes standard display ads that appear on MySpace pages next to relevant content. For now, HyperTargeting doesn’t allow video or other types of advertising, although MySpace has a separate deal with Google that serves text ads, similar to those seen on a Google search.

Meanwhile, Facebook’s Beacon system taps into what the company calls the “social graph,” defined as the network of connections among users. When users visit a company’s Web page, even outside of Facebook, “that action will spread information about that business through the social graph,” according to the company.

“It’s no longer just about messages that are broadcasted out by companies, but increasingly about information that is shared between friends,” said Facebook Chief Executive Jeff Zuckerberg. “We set out to use these social actions to build a new kind of ad system.”

Negative reaction to the system swirled around user reluctance toward informing friends about all their online activities. The publicity and an online campaign organized by MoveOn.org caused Facebook to alter the program so that the distribution of purchase announcements would depend on a user’s explicit authorization for each transaction. Later, the company changed the privacy settings for the program so people could opt out entirely.

But for marketers, the Facebook system makes sense.

“I like the model that Facebook has put forward,” said Greg Johnson, chief marketing officer at GGL, a social networking site in Santa Monica that concentrates on video gamers. “They got into trouble because they didn’t have an opt-in program, but they’ll clear that up.”

Privacy concerns

In part the sites’ different audiences explain the privacy concerns MySpace is dominating the world of online social networking, while Facebook is favored by college students.

“Your average MySpace user is used to ad frames on their page,” said Jonathan Hall, vice president of business development at MarketingWorks, an interactive marketing agency in Los Angeles. “MySpace offers more ways to engage groups en masse, whereas people who are drawn to Facebook want more privacy.”

Johnson believes the unstructured nature of MySpace complicates its marketing function. Visually, MySpace users can build and decorate their own page, while on Facebook the pages have set frames and a uniform look. “Facebook is a far more controlled environment, so it’s easier to structure the ads into the pages,” Johnson said.

Burkart noted that MySpace affords users the chance to get creative, a major appeal that drives traffic to the site.

As for user comfort, she emphasized that MySpace always had an opt-in policy. “We’re not creating a spam scenario,” Burkart said. “This is delivering targeted information to individuals. If they act on it, that’s their prerogative.”

For advertisers, HyperTargeting offers a potential solution to scattershot Internet advertising. “Earlier on MySpace, you could buy ad space but sometimes you got some really irrelevant content with that space,” said Johnson. “You’ve got these members spending huge amounts of time and giving lots of information about themselves. The challenge comes in trying to turn that around and give them relevant information from the marketers.”

Chas Salmore, chief executive at MarketingWorks, believes that eventually Internet advertising will develop as it did for the TV industry. “People treat the ads like white noise,” he said. “In a pure world, it would be an intrusion. But a social networking site isn’t a paid service, you access it for free. You take it with both the good and the bad.”

Attention small advertisers

MySpace in November announced plans to introduce a version of HyperTargeting adapted to midsize and local advertisers before the end of 2007.

The plan, known as SelfServe by MySpace, will allow companies to set up their own HyperTargeting campaigns. Companies will log in and select the audience criteria and the amount they can spend. MySpace hasn’t announced the cost for the service, but Burkart anticipates it will use average rates for cost per click advertising.

Small advertisers will have access to the same audience categories as major brands. The large categories country music lovers, for instance might have 3 million users on MySpace. But advertisers can break that down to types of country music or even fans of particular singers. Advertisers can also narrow the audience with demographic and geographic data, but the smallest groups will have a total potential audience of about 100,000.

But until putting ads on social networks becomes Google-like in terms of simplicity, both MySpace and Facebook will continue to experiment with ways to monetize their traffic, according to Johnson.

“Over the long run, both will do have to do what’s necessary to understand users and provide messages to those users in a way that doesn’t get their experience completely lost,” he said. “If this works right, consumers will like it. They won’t get upset. They’ll only get a car ad when they’re looking for a car. It will seem naturally like something they want, maybe even something they asked for.”