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Even though social networking companies serve tens of millions of users, there’s still bizarrely little advertising on the most popular sites. Many big agencies and brands have experimented, but they’re still looking for better ways to target the users they want.

The latest company hoping to serve these advertisers is Appssavvy, a startup that sells direct advertising space on social media applications like Flixster, MesmoTV, and Playfish — most of which have a presence on major sites like Facebook. The company announced today that it received $3.1 million in second round funding.

New York-based Appssavvy joins a field of peers hoping to score social media ad dollars. Companies like SocialMedia, Lookery and Social Cash have also been selling advertisers on new and innovative ways to add branding to social networking sites. But Appssavvy likes to distinguish itself as a consulting firm, working with its clients to devise a more custom, targeted end product.

Examples of Appssavvy campaigns include Sony’s sponsorship of Facebook’s Wedding Book application to promote its film “Made of Honor,” a custom Facebook application built for Kohl’s back-to-school season, and ads for the TBS show “My Boys” on the MesmoTV application… on Facebook. Okay yes, all of their examples are from Facebook, but Appssavvy says it can also hook brands up with apps for the iPhone, MySpace, Hi5, etc.

Despite the seemingly thin client base represented on the startup’s site, it did land a deal with NBC Universal at the start of the month that gave it exclusive ad-sale rights on NBC News’ iCue website. iCue is a social network targeted at students that lets members watch NBC archive footage, join related discussions, and play relevant learning games.

Even if Appssavvy can bag other big names, it still faces a tough market for social media campaigns, which have yet to gain major traction on Madison Avenue. In fact, one study suggests that half of these campaigns are already set up to fail.

Still, that didn’t dissuade Appssavvy’s recent investors. The round was led by True Ventures and also included About.com founder Scott Kumit.

Lookery began life one year ago as a banner advertising network for third party applications on Facebook, with plans to target ads to users based on demographic data. It’s ended up as a company that collects anonymized demograhic data about sites around the web, and sells this information to ad networks in order to help them target ads.

Rivals, like Revenue Science, attempt to track complex user behaviors, and charge five dollars or more per thousand users. Lookery sells its data at 25 cents per thousand users — simple data sets that includes only age, gender, general location, and related keywords generated through searches that lead users to sites. Using “cookies,” or small snippets of code that collect data about web users, Lookery runs ads on its network for 25 other ad networks. It currently gets four billion impressions, web-wide.

So if a 27 year old male living in Mountain View, Calif. were to visit a political site, Lookery could help target a political ad that might be especially meaningful to him.

Unlike many ad-targeting technologies, Lookery isn’t a technology play, it’s economic war. “We think these lightweight profiles should be cheap and publicly available” for advertisers, says chief executive Scott Rafer. Lookery publishes the data it collects about other sites on its own site; if an ad network likes the basic data it sees, it can buy the more complete data sets from the company.

Right now, “advertisers can’t buy this data in volume,” he says. Some companies already have such data, of course, but they’re not selling it. For example, Google targets ads on MySpace using this data, but doesn’t share such data with other ad networks.

The company has a couple ways of gathering this data. It lets sites that want to learn more about their users install a snippet of Javascript code that records the information (check out the screenshots for Lookery data about the product review site ThisNext). Lookery is also buying data from other companies.

This doesn’t include Facebook user data, though, because Facebook doesn’t let third party ad networks target ads using its users’ information. Only third-party applications themselves can do that, and only with their own ads, not a network’s. Lookery instead imports the data it collects elsewhere to target ads inside Facebook. Large app developers like Slide have their own ad networks, and can target their own ads using that data; Lookery aims for smaller app developers who don’t have the resources to do so themselves.

So why did Lookery bother with Facebook in the first place? “We threw up that stupid banner network after nine days of work, realizing it was a bad business but that it would lead to the right place,” Rafer tells me. “We served up a lot of ads, got a lot of data, and saw where it led — it wasn’t until last October that we had a glimmering of a business plan.”

He says that the sales relationships the company now has with ad networks were a result of them using Lookery to run ads within Facebook. The Facebook ads themselves “make a little bit of money,” he adds. The company has “good” revenue so far, according to Rafer. As part of its plan to drive down the cost of profile data sales, the nine-person company is lean, using only web-based services to operate.

It’s not clear if Facebook or MySpace plan to encroach on Lookery’s model by selling their own data to ad networks, or running their own web-wide ad networks.

Regarding privacy: While some ad networks collect personally-identifiable information in order to target ads, Lookery chief executive Scott Rafer claims his company is “a bunch of privacy freaks,” and points out that all data is anonymized as part of the company’s terms of service. It doesn’t collect names, email, exact birth dates, or other information that violates privacy regulations in the U.S., the E.U. and in countries around the world.

The company already raised a first angel round of $1 million from prominent angel investors. In its latest $2.25 million round, it has re-upped from some of them, including Salesforce chief executive Marc Benioff. It has also raised funding from an investment group called ATTRACTOR, Sand Hill Road VCs who invested independently of their firms, and strategic investor Holtzbrinck, the German publisher that owns the German Facebook clone StudiVZ.

Lookery, a company that sells advertising on Facebook, and more recently also other social networks, and other web sites, has been scraping the bottom of the social network advertising barrel, and growing fast. Starting at the end of January, it began guaranteeing Facebook applications and more recently any other web site or widget a cool $0.125 per thousand ad impressions for any traditional banner ad it ran — a trivial amount for so-called cost-per-mille (CPM) ads.

Lookery’s plan was to hit one billion impressions by April, then introduce demographic-targeting features that allow for better targeting of users, and for higher CPMs from advertisers trying to reach specific types of users.

The plan is ahead of schedule. The company has gone from less than 200 million impressions in January to 640 million impressions in February, and last night, it hit the one billion impression mark (and there’s still a third of March left).

Of course, the arithmetic says that at a twelve and a half cent CPM, the company is making (a minimum of) $125,000 total for its partners — the company offers higher CPMs on some applications, and it neither discloses its total revenue figures nor how much it is making from its ads.

So where’s the money (and the privacy)?

If an advertiser can buy advertising that only reaches the people they want to reach, then the ads are more effective, and worth more, especially to brand advertisers that still spend the lion’s share of their ad budgets on traditional media — that want to reach social network users.

Yes, Lookery isn’t yet making significant money from running banner ads on its social networks or other sites. But if it is able to build a successful way of targeting its ads, its bottom-scraping strategy could pan out to reveal more than fool’s gold. The company is collecting information on users across Facebook and its other sites on the web, sometimes through cookies, sometimes through javascript that identifies demographic information. It collects basic information, like sex, age and general geographic location of a web user, and anonymizes that data.
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Facebook, the booming social network company, is quietly creating a technology that would let advertisers target Facebook users based on the “massive amounts of information people reveal” about themselves, according to a story in today’s WSJ.

The new ad plan, reportedly being led by Matt Cohler (pictured top), vice president of strategy and business operations, and Chamath Palihapitiya (pictured below), vice president of product marketing and operations, may produce some serious concerns among some of Facebook’s partners.

Advertisers placing ads on your profile page will have access not only to your age, gender and location, as they do now, but also on details such as favorite activities and preferred music, according to the piece. They wouldn’t have access to your name however — and thereby have no way to target you as as an individual. Rather, Facebook would let advertisers target groups with similar characteristics.

But the biggest bombshell of the piece is this line: “In addition, the ads would show up on Facebook pages that feature services provided by other companies, one person says.” If true, this suggests Facebook wants to advertise on pages controlled by third-party developers on Facebook’s “platform.” This could be a slap in the face to those parties because Facebook had previously said it would let them make money by running their own advertisements. However, the sourcing and wording of the article on this matter is vague. It’s quite possible that Facebook may let third-parties access the technology, and agree to some sort of revenue share, letting all parties win. It’s all speculation at this point.

A Facebook spokesperson declined to comment for the article. Worth noting is that numerous companies have launched their own ad networks to run on Facebook’s third-party applications (these companies include Lookery, RockYou and VideoEgg). Microsoft, which has a large deal with Facebook to run its own ads, may have its own concerns about the program. The advertising rates advertisers are getting on Facebook is being highly debated. Some reports suggest rates are as high as $10 CPM in some cases. However, a source told us recently that Microsoft is losing money on every ad it serves on Facebook. We ran this by Facebook two weeks ago, but a spokesperson declined to comment on rates, saying only that the relationship with Microsoft was strong. Microsoft recently extended its partnership with Facebook, suggesting things can’t be too bad, or even that Microsoft itself may be in on the ad targeting plan being developed. Again, we don’t know.

Silicon Valley entrepreneur Scott Rafer (left) has built a new ad company, Lookery, for social network company Facebook he claims will provide advertisers with more detailed data about users than ever.

He’s doing this by serving ads within the applications on Facebook’s platform. Facebook’s terms of service let third-party developers access profile data of users. This is extremely rich information that may cause advertisers to froth at the mouth.

Facebook’s 32 million users, many of them college aged, provide a bounty of information about themselves in their profiles — from their age, to geographic location, hobbies and other interests, romantic to academic. Calvin Klein or Fendi for example, can use Lookery to target their ads to users of Facebook applications most heavily used by college aged woman aged 19 to 22, who are romantically involved and are likely to have high incomes because they attend Ivy League schools. Lookery, meanwhile, will be able to charge advertisers specific rates for targeting that demographic.

While it still only serves a tiny outpost of the overall Web, Lookery is significant because it gets closer to what other behavioral companies such as Tacoda, 24/7 have promised but in reality have only been able to approximate. These networks can approximate a user’s gender, location and income levels, but never guarantee it.

Rafer launched Lookery quietly last Friday. Rafer in the past has launched companies like WiFinder (indexed WiFi hotspots), Feedster (blog search), MyBlogLog (widgets/analytics for blogs) and Mashery (mashups).

Here is the site. The number of application owners who have signed up with Lookery is small, but already in the dozens, according to this list. The ads are only now just beginning to run. See screenshot below for an example of an ad on one of Facebook’s applications.

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Rafer has also recruited Dave Cancel, co-founder of Web-traffic measuring company Compete, to join the company beginning this Monday. He’s using Openads (see our coverage), an open source ad server technology, to deliver the ads.

Under Facebook’s terms, Lookery, like other applications using its platform, can retain the demographic and profile information for no longer than 24 hours, after which it must relinquish the information and not retain any of the personally identifiable information. However, Lookery keeps a tab on aggregate data, building demographic profiles of the types of users who tend to use specific applications and their publishers.

Rafer said he hasn’t talked with Facebook about Lookery, but said its campaigns won’t conflict with Facebook’s ad relationship with Microsoft. Lookery’s ads are served only in the area of applications controlled by third-party developers. Further, Lookery will seek to partner with Microsoft to offer up its services to the software giant, to help it target ads better, Rafer said.

Finally, Rafer said several other social networks are preparing to open their platforms to outside developers too. To catch up, they’ll likely clone much of the Facebook standards to expedite the move by developers to their own platforms. That way, Lookery may soon be able to serve ads across multiple networks, Rafer said.

See audio file below for a brief conversation we had this afternoon with Rafer, which elaborates on his strategy, Facebook’s terms and the Microsoft angle. It’s Flash, so RSS readers will not be able to see it. (Apologies for mediocre sound; Scott was calling in from London on Skype, I was on cellphone.)

[Update: We just talked with Facebook Chief Privacy Officer Chris Kelly, who was concerned that some other media following this story have misunderstood what is allowed under Facebook's terms. Outside ad networks will not be able to target applications based on individual profile data, because they won't have access to it. Only developers with applications can access the data and use it for a day for the express purpose of serving the application. They can't use it for other purposes, including providing it to ad networks. Facebook has technology in place to view what sort of queries are being made on its system's profiles, he says, and will eject applications developers who abuse the terms (as Scott Rafer mentions in audio).]