Cookie tracking: How Facebook could be worth $100 billion?

facebooklogo-latest2.jpgWhen Facebook launches its “SocialAds” advertising product on November 6th, the technology will reportedly rely on cookies — unique identifiers sent to each user’s computer from Facebook, and tracked by Facebook when they visit web pages.

The cookies can then be used to serve users contextually relevant ads on other sites, as those users surf across the web.

This could be how Facebook’s $15 billion valuation implied by Microsoft’s investment last week will start to make sense.

Lee Lorenzen, of Altura Ventures and Facebook application company Adonomics, cites sources in Microsoft and Facebook as well as other developers during a long essay on the possibility of Facebook using cookies to track users, while AllFacebook confirms the rumor.

A Facebook user, for example, who’s a 26-year-old male and lists that he likes beer in his Facebook profile might get served an ad for a beer company when he goes to check his favorite team’s scores on an outside sports site.

Cookies are pieces of data containing information about web pages that users look at, that are stored in the user’s web browser by sites. Facebook already uses cookies to recognize existing users as they return to its site for a new session, so they don’t have to login every time. The difference going forward would be that the cookies could be used by to track users beyond Facebook’s site.

What we don’t know is whether Facebook would control the cookie data (forcing other sites to partner with Facebook, by opening their pages to advertising wanting to access the platform) or whether Facebook would license the data away to another network willing to pay big bucks, for example a BlueLithium or Tacoda..

Krishna Subramanian of BlueLithium, an ad-targeting company recently bought by Yahoo for $300 million, tells us the addition of social data to ad networks can greatly improve the value of banner advertising.

Cookies help advertisers target ads to individual Facebook users, because these cookies reportedly could automatically identify each Facebook user as they surf the web, and then serve advertising relevant to their stated interests on Facebook.

Advertisers would be able to clearly see interests in beer and other such personal information for 50 million Facebook users, for the first time. Right now, the ad networks record actions like surfing or clicking, but lack specific data about what you’re actually trying to accomplish through your actions. There aren’t many places besides a Facebook profile where the average young man will write “I like to drink beer” next to their name.

Cookie-tracking technology is already in place at ad networks such as aQuantive, a company bought by Microsoft earlier this year.

CPMs, or the amount of money gained per thousand views of an advertisement, are low on social networks — as low as $0.10 per thousand impressions. The people who would benefit most: Vertical advertisers like beverage makers, Subramanian tells us. While he notes not every type of advertiser may benefit, some may be willing to pay CPM rates that are double what they are paying now.

Microsoft’s strategic investment in Facebook means it not only has the chance to play with the company’s rich and untapped data set, it gets to keep it away from Google.

Lorenzen has previously claimed that Facebook could be worth up to $100 billion because of its ability to drive relevant online advertising. Others scoff at his valuation.

The rumor of a highly-targeted Facebook ad network has been going at least since August (our coverage here).

Update: A bunch of other companies have now ganged up against Facebook, to create their own vibrant platforms.