Beacon, the controversial advertising tool used by Facebook to deliver highly targeted ads to users, was removed from the site a couple of weeks ago due to increasing concerns from privacy advocates. Beacon was a great idea. Basically, the tool would allow data from other sites to be automatically delivered to a user's Facebook profile. For example, if you went to Fandango to purchase movie tickets, your transaction data would be transmitted to Facebook and included in your profile. That way your friends would know where you buy movie tickets and what movie you're going to see. Minus the privacy concerns, I think it's pretty neat.

Here's how I think this probably affected each of the three stakeholders.

Facebook: For Facebook this was wonderful because, presumably, they could charge advertisers high fees (with sky-high margins) for these ads.

The Advertiser: For the advertiser it was great too because it effectively created "forced word of mouth"; i.e. "oh, Betty buys her movie tickets at Fandango, maybe I should too". Of course this doesn't mean that Betty is necessarily happy with the Fandango service or that she would recommend it if the data were under her control -- which does make the referral a bit less impactful. Nonetheless, there's still a lot of value here.

Facebook Users: For the users, this wasn't so good. It was an obvious invasion of their privacy for nothing in return.

To me this was the perfect time for Facebook to use the "pay-the-consumer business model" I've referred to in other posts.

Think about it for a moment. This is a win-win-lose model. Facebook and the advertisers win and the user loses. How could the user win? Why not simply transfer some of the margin from Beacons' sales directly to the users. That's right, invade the user's privacy but give them something in return. Further, make everything opt-in. Privacy advocates can't complain when everything is opt-in. And there'd be no shortage of opt-ins because people like easy money. You could setup variable pricing for the advertisers based on unique users that viewed the data -- you could even charge based on the profile's of the users that made the transaction (Facebook has a TON of demographic and behavioral data that they could share with advertisers.)

To execute this, they simply could've added an icon to every users homepage asking them if they wanted to make some easy money. When the icon is clicked, the users could opt into Beacon's various features. Each feature would clearly describe two things:

1. Exactly what data they'd be forfeiting and who it would be seen by. 2. Exactly how much money they'd receive in return for the opt-in.

Of course they wouldn't have to actually send cash to the user. It could be gift cards, or actual merchandise from their favorite merchants. It could even be raffle based -- "opt into Beacon for the chance to win an iPod). Eventually it could buy users access to premium site features.

The bottom line her is that the only way innovative ad systems like Beacon will be sustainable is if the users have control of the data that is sent and if they feel like they're getting something in return.

The key here is trust.

And I don't know about you but I'm usually more likely to trust companies that pay me.