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lookery032108.pngLookery, 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.

Lookery has been talking up its data-focused plan since it launched last summer, but it is part of a larger trend to use social networking data and other web data to target ads. Social networks themselves are working on similar efforts. For example, MySpace has claimed that its own, somewhat related ad targeting efforts that use its user data have already increased click-throughs on its ads by 300 percent (although the value of a banner ad is in being seen by the right person, not just if a click happens). This week, MySpace is continuing to roll out those ad-targeting efforts, in Britain.

Of course, online ad companies of all sizes tend to overpromise their ability to target ads, because they know advertisers are hungry for that ability. Lookery itself been criticized by competitors I’ve spoken with, who say targeting is a lot harder than Lookery makes that service out to be, and that Lookery can’t do what it intends to.

And, like every company trying to target ads through user data, Lookery has also taken some heat from privacy advocates who don’t want companies tracking any sort of personal data. In the grand scheme of things, Lookery is actually relatively mundane when you consider that companies from internet service providers to publishers are busy buying and selling much more personal data. Consider the ad startup Phorm, which is explicitly trying to track every action of every person across many different services, not just social network, in order to help it serve up more targeted ads (note: That company also says it obscures the actual identify of each person it tracks).

Lookery, like many in the ad industry, is also looking to start selling the data it collects about users — its plan is to specifically sell the data to the inside sales teams of online publishers, who can use that information to better target their own ads.

The gold is getting panned, as we speak

Lookery is gobbling up a lot of cheap inventory on social network applications and it is in an interesting position to do a better job of monetizing. To criticize the efforts of Lookery — or MySpace, or Facebook, or any other social networking-focused ad effort — is premature.

Indeed, the mistake that social networking critics tend to make is that they think online advertising is only about clicks. A great example of that is when Google discovered that its AdSense ads on MySpace weren’t doing as well as expected, last month. “This has huge nasty implications for social networking sites” Barron’s Eric Savitz declared, wrongly assuming that Google’s ads on MySpace are where the dollars should be.

While the online ad industry is really good at direct response advertising that rely on clicks, highly lucrative brand advertising is still coming online, Federated Media’s John Battelle noted recently in an interview. Until “you have engagement, integration and proof of user awareness,” he says, “you are just going to keep devolving down to direct response pricing, which is sub $5 cost per thousand (CPM) for an ad.” (Disclosure: FM sells some ads for VentureBeat.)

Sure, not every effort to monetize social networks has worked. Untargeted banner ads don’t work and neither did Facebook’s Beacon — which tracks users purchases on other web sites then shows their friends those purposes (although Facebook is busy working on a better version of the product, it says).

But social networks, social networking applications, and the various forms of advertising that run in them are still promising. Lookery is only one of many companies exploring how to monetize social networks. Widgets, and more complex applications, are making money from brand advertisers — take a look at DoubleClick’s new deal with widget creator Gigya, which will allow DoubleClick’s large advertisers to run their ads in Gigya widgets. Meanwhile, musicians and other creative people are finding that social networks and widgets are powerful ways to promote themselves, as music application creator iLike is finding. Interactive widget-maker Splashcast, which also creates widgets for many musicians, says even click-throughs are great — 75 times higher than untargeted banner ads on MySpace and Facebook, it claims — and that was enough to land it another round of funding this week. Meanwhile, companies like Peanut Labs are profitably running surveys across widgets.

Lookery fits in to the wildly experimental field of social networking as a fall-back means of monetization, but its hardly the only one.

The fairest way to be critical about these efforts is to say: “Nobody knows how valuable social networks might be, and in fact, I personally have no idea.” It’s not to do as The Economist did, and come out saying that since monetization isn’t happening now, it’s probably not going to happen. That’s what a lot of since-regretful investors said about Google before it came out with AdSense and AdWords.

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