Facebook has been sitting on a gold mine: users’ information. Up until now, the company has used this to target ads within the site. But now, Facebook could soon launch an external ad network, using data from within the social network. For instance, information from your interests and likes could be used to create targeted ads on websites away from Facebook. It’s not yet known exactly what this could look like, but Emergence Capital General Partner Kevin Spain talked with AllFacebook about how it would change online advertising.

We reported in May that Facebook’s changes to its data use policy meant that information from users’ profiles could be used to create ads off of Facebook. Back then, Facebook Director of Corporate Communications and Public Policy Barry Schnitt told CNET:

We can foresee a future where we might serve ads off of Facebook, and they may be standard ads, or they might be, “Your friend John liked” a product.

Bloomberg Businessweek writes that the future may be coming soon, noting that this could double Facebook’s roughly $5 billion revenue stream.

Spain told AllFacebook that an external advertising network has probably been in the works for quite some time. With such sensitive material — users’ data — at stake, he figures that Facebook wanted to make sure it got it right in one try, and that this wasn’t a rushed endeavor. Spain’s company, Emergence Capital, invests in business-to-business ventures. Its portfolio includes tech firms such as Salesforce and Yammer.

How could data be used? There are a couple of ways, Spain said. Say you’ve liked Target as a brand page on Facebook, you enjoy playing games on a PlayStation 3 (as evidenced by likes and public posts), and you live in San Francisco. You could start to see more ads for video games at local Target stores on websites. Much like Schnitt told CNET, the external ads could also be like sponsored stories. This specialized, bottom-of-the-funnel style of advertising is something that Facebook is uniquely positioned to excel in, thanks to its large cache of data.

Facebook could also use external ads much like Google does. Have you ever noticed, near the top of your Gmail window, how you’ll see ads for terms that were just in the email you were checking?

If a user has visited several photography Facebook pages, clicking on links to reviews and product announcements, Facebook could assume that the person is in the market for a new camera. That person, based on their Facebook activity, would start to see ads for cameras.

Because users are so willing to like pages and enter interests and other information into their profile, Facebook has a huge advantage in the ad targeting game, Spain said:

Obviously, they’ve got a tremendous amount of targeting data. That’s a massive advantage that they have that frankly, even Google doesn’t have. You can imagine various kinds of ad products that they could launch on third-party sites taking advantage of the fact that they know everything about the user that is visiting that site at that time … The targetability of those ad units is, in many ways, going to be unparalleled because they know more than just about anyone else on the Web.

Spain also said that users will likely see fully integrated marketing campaigns. For instance, many brands have similar marketing campaigns spread around Facebook, Twitter, Pinterest and other social media sites. Now that Facebook users’ data is available for use off of Mark Zuckerberg’s social network, Spain thinks that users may see a closer tie between Facebook and third-party sites when it comes to ad campaigns. This way if a user sees an ad for a certain campaign on Facebook, that user could also see it again after clicking away from the site.

However, Spain notes that Facebook also has to walk a fine line between providing key information for advertisers and violating users’ sense of privacy and protection:

It’s not necessarily the knowledge that Facebook is using your personal data to target ads — I think most people on Facebook know that. Where it starts getting really creepy is when you see that ad that makes it abundantly clear that they know exactly what you’re doing. That’s when people really start to get freaked out, even though they know Facebook has all of the information to make that possible. I think that’s really the magic here: You want to target advertising, but in some ways, you don’t want it to be so targeted. There’s a line you sort of cross where the consumer starts to feel that the data are being used in an improper way.

Spain guessed that instead of going bottom of the funnel and specific (which Facebook has the power to do, as explained before), Facebook might likely go for a broader reach based on demographics. He pointed out that kind of targeting is really where the money is, plus it doesn’t make for as much of an offputting experience. For instance, if a user has been searching for a specific model of camera, reading reviews and checking out different Facebook pages that would have information about said camera, and then a user sees an ad for that exact model, that’s where the line would be crossed.

Facebook’s treasure trove of data has made the thought of an external ad network tantalizing for brands, and likely scary for many consumers. Many users are alarmed to see how their personal data has been used, so if Facebook does indeed follow through with this, it will be interesting to see how it all plays out.

Readers: What do you think Facebook’s external ad network could entail?

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