Google’s push into philanthropy is being watched closely because of its size and its effort to erase the usual boundaries between the for-profit and nonprofit worlds.

Valued around $2 billion, the assets currently set aside for the company’s philanthropic arm, Google.org, make it larger than any other in-house corporate foundation in the U.S., according to the Foundation Center, a nonprofit research firm. (Private foundations set up by tycoons such Microsoft Corp.’s Bill Gates have more assets.)

Just as important, the Mountain View, Calif., Internet company is marshalling both company and foundation resources around the initiatives, which it hopes will provide more impact in tackling some of the world’s biggest problems. Philanthropy experts consider Google to be among the leading edge of donors who are experimenting with this hybrid for-profit/nonprofit model. Others include eBay Inc. founder Pierre Omidyar’s Omidyar Network, which both invests in businesses and makes grants to nonprofits.

Google says it isn’t looking to make money on its philanthropic efforts. But, as a division of the for-profit company rather than a nonprofit offshoot, Google.org has freedom to invest in and operate businesses, lobby for political causes and issue certain types of grants that a traditional corporate foundation would not. Its announcement Thursday includes a $10 million investment in closely held eSolar Inc., which is working on utility-scale solar power. Google.org also expects to invest directly in businesses in places such as Africa to spur job creation. “We can start new industries,” says Executive Director Larry Brilliant. “I hope we will.”

Google.org unveiled the first set of major five- to eight-year initiatives it will pursue. The initiatives include efforts to create systems for helping predict and prevent disease pandemics, to empower the poor with information about their public services and to spur job creation by facilitating investment in developing-world small- and midsized businesses.

They join previously announced initiatives to accelerate the commercialization of plug-in cars and make renewable energy cheaper than coal. Google will work with partners in each area, although it plans to directly invest money in businesses and operate some of the projects itself.

The money Google.org has awarded to date remains modest, and its progress so far has been slow compared with its parent company’s breakneck growth in staff and business reach. Some philanthropy experts warn Google that successful businesspeople with high hopes for solving the world’s problems have underestimated those problems’ complexity and fallen short before.

But, coming nearly four years after Google first announced it was devoting 1% of its equity, 1% of profits annually and an unspecified amount of employee time to Google.org, the announcement will give much-awaited shape and focus to its activities.

Selected from among over 800 suggestions, the final initiatives show Google’s special interest in projects where it can bring its engineering and information-management prowess to bear. Google staff, many of whom enjoy freedom to spend 20% of their time on independent projects, are expected to contribute significantly to Google.org efforts. The winning initiatives also exhibit Google’s characteristic penchant for audacious moves to reshape markets—from advertising to developing-world small-business financing—others are often more timid in approaching.

Google.org’s big ambitions suggest that it could potentially transform the business mix of Google itself—leading the company to become a player in sectors such as energy and finance.

“They’re business and technology people saying we want to find business and technology solutions to problems,” says Mark Kramer, Managing Director of FSG Social Impact Advisors, a nonprofit philanthropy and corporate social-responsibility consulting and research group. “That hasn’t been done much before.”

The roots of the effort trace back to Google’s April 2004 regulatory filing for an initial public offering. In it, company co-founders Sergey Brin and Larry Page announced plans for a corporate foundation with the goal that “someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world’s problems.”

To get started, the company created a nonprofit corporate foundation with about $90 million in funding. It announced plans to focus on issues related to energy and the environment and global poverty.

After discovering in 2005 that its foundation couldn’t easily donate to the One Laptop Per Child project, a nonprofit initiative to sell low-cost laptops to developing countries, Google began pursuing the hybrid approach with the for-profit structure. Laws prevent corporate foundations from making gifts that might financially benefit their businesses, and the laptop project aimed at increasing Internet access arguably could boost Google’s online advertising revenue.

In February 2006, Google hired as Google.org’s executive director Dr. Brilliant, a colorful former physician who helped direct efforts to eradicate smallpox from India in the 1970s, and after the Sept. 11 attacks, served as a bioterrorism consultant to the U.S.’s Centers for Disease Control.

With Dr. Brilliant’s arrival, Google.org added global health as a third focus area. He and colleagues sought advice from leaders in the philanthropy field and Google staff and made small “learning grants” to nonprofits. But by spring 2007, Dr. Brilliant and his team realized they needed to focus on a limited set of initiatives in the environment, poverty and global health areas.

In June, they kicked off an internal competition to select the top initiatives. As part of the competition presentations, internal teams had to outline how the initiatives were pro-poor, how they would measure success, how they would take advantage of Google’s resources and what their potential impact was.

Softness in the economy also will likely drive more money to the Internet, which can be cheaper than other media and has a reach that is easier to measure, which is attractive to advertisers in slower times. Merrill Lynch predicts overall ad spending in the U.S. for 2008 will grow 2.3%, while the portion of that spending on the Web will increase 18%. Publicis Groupe’s ZenithOptimedia says it expects the amount spent on Internet advertising to overtake spending on radio in 2008, and spending on magazines in 2010.

Amid this transformation of the ad industry, here are five trends to watch in 2008:

• New structure: The Web has fueled marketers’ frustration with the lack of collaboration inside the ad holding companies that dominate the industry. Specifically, marketers want more cooperation between the executives who create ads for TV and newspapers and those who craft Web ads or perform less glamorous tasks such as researching consumer behavior.
 
Many advertisers complain that ad executives too often push agendas that will most help their own bottom lines and tend to favor certain types of media, such as TV. Advertisers want a “media-agnostic” approach, one that picks whatever medium is best for the ad campaign.

Some bigger marketers have taken matters into their own hands during the past year. Procter & Gamble, Dell and Johnson & Johnson each have tried — working with ad holding companies — to create new types of ad groups that blend different functions. In 2008, pressure from marketers on this issue is likely to intensify, forcing even more change in the way ad firms are structured.

• Screen wars: As advertisers find it harder to reach consumers in a fragmented media world, some are turning more often to the outdoors. Television screens are increasingly popping up in grocery and department-store aisles, elevators and even gas pumps — all blaring clips of TV programs, accompanied by ads. Walt Disney’s ESPN and CBS Corp. each have programming running on 20-inch liquid-crystal displays at pumps at gas stations around the country. Gas Station TV, which operates about 5,000 such screens in 300 cities, offers ads from marketers such as General Motors’ Chevrolet and Sony. Last year, CBS inked a deal to have its programming also air in the waiting rooms of doctors’ offices.
 
• House guest: Over the years, ad makers have tried various methods to learn about consumers, from focus groups to online polls. But many on Madison Avenue are skeptical of these methods, believing consumers don’t always share their true feelings in those types of traditional settings. So a growing number of ad agencies are expected to try a different approach: having researchers spend long periods of time with consumers to find out more about how they live.
 
Some have already tried this. When devising a new ad for J.C. Penney last year, Saatchi & Saatchi sent staffers to hang out with more than 50 women for several days. They helped the women clean their houses, carpool, cook dinner and shop. Rather than pepper them with questions, the agency employees simply observed the women’s behavior and emotions. Their research became the basis of a new ad campaign; the commercials have won praise from Madison Avenue’s creative community.

“If you want to understand how a lion hunts, you don’t go to the zoo — you go to the jungle,” said Sandy Thompson, global head of strategic planning for Saatchi, which is owned by Publicis Groupe.

• Green backlash: Corporate America latched onto environmental marketing last year, as big companies spent millions of ad dollars promoting their products and services as eco-friendly. Some people in the ad business are predicting a backlash this year from consumers who question whether companies are living up to their promises. “Marketers will be more intensely scrutinized for their green efforts — those that don’t hold up will be called out via blogs and elsewhere online, ultimately leading to consumer skepticism,” said Greg Stern, chief executive of the ad firm Butler, Shine, Stern & Partners.
 
• The antisocial movement: Privacy issues, combined with the fact that consumers have only so much free time, could damp the boom in social networking on the Web. “Nobody has 5,000 real friends,” says Tim Hanlon, senior vice president of Denuo Group, a media and advertising consulting firm owned by Publicis. “At the end of the day it just becomes one big cauldron of noise.” For marketers, he says, that will mean the sites will be much more effective as a consumer-research tool than as a venue to peddle products.

Suzanne Vranica is a writer for WSJ.com

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Mr. Allen, through his Vulcan Spectrum LLC, disclosed a commitment last week to bid at the Jan. 24 auction, alongside Internet giant Google Inc., wireless operator AT&T Inc. and others.

While his intention to bid came as a surprise to many, it could allow him to add to the swath of spectrum he has acquired through Vulcan in the valuable 700-megahertz band. This low-frequency variety is valued for its ability to penetrate walls and other obstructions.

Mr. Allen snapped up 24 700-megahertz licenses through Vulcan in 2003, FCC filings show. Those licenses are based entirely in Washington and Oregon and include major metropolitan areas such as Portland, Ore., and Seattle.

The question is what Mr. Allen plans to do with his spectrum holdings.

Tim Sanders, an analyst with market researcher Maravedis Inc., said Vulcan may be acquiring and holding the spectrum for cable operator Charter Communications Inc., in which Mr. Allen bought a controlling stake in 1998. Keeping the spectrum in the hands of a private entity like Vulcan could save Charter money on taxes, Mr. Sanders said. In addition, he said, it could reduce the amount of information publicly traded Charter is required to divulge about what it might be doing with those assets.

“Amassing spectrum is a venerable tradition,” Mr. Sanders said. “There are tons of spectrum in the U.S. just sitting there waiting for somebody to do something with it. Mostly it is in the hands of big companies. In the cellular frequencies, it is very well utilized and nearing capacity, but in other spectrum ranges it is barely deployed.”

Speculation about Mr. Allen’s other possible intentions for the airwaves include video broadcasting. Qualcomm Inc., for example, uses 700-megahertz spectrum for its MediaFLO mobile-television service. “Certain blocks have more relaxed requirements that make them more attractive for [video] broadcast services,” Signals Research Group analyst Michael Thelander said of the 700-megahertz spectrum.

Or, Vulcan could simply be amassing the valuable resource in hopes of selling it at a later date.

Michael Nank, a spokesman for Mr. Allen, declined to comment on the reasons for Vulcan’s entry into the January spectrum auction.

Other companies, such as AT&T, probably would use the 700-megahertz spectrum to provide connections for Internet, mobile phones and streaming video.

Spectrum is one of many areas Mr. Allen has dabbled in over the years. Mr. Allen co-founded Microsoft with Bill Gates in 1975. He subsequently left the company and went on to numerous other ventures, including his investment in Charter and ownership of the Portland Trail Blazers pro-basketball team and the National Football League’s Seattle Seahawks. Mr. Allen regularly appears in Forbes’ annual list of the world’s wealthiest individuals.

One of his interests is real estate, a sideline that draws some parallels to spectrum, which can be purchased, maintained and then sold later for a profit.

Mr. Sanders of Maravedis noted that Aloha Partners LP bought up licenses in the 700-megahertz band that provide coverage for 196 million people, and in October agreed to sell the spectrum to AT&T for $2.5 billion.

Although the FCC has rules requiring spectrum owners to build out networks and put the airwaves to use, their stringency varies, and deferrals are possible.

An FCC spokeswoman said the buildout rules for the airwaves up for auction in January are slightly more stringent than those auctioned previously in the 700-megahertz band.

John Letzing is a writer for The Wall Street Journal

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Vivendi’s mobile phone unit SFR already owns about 40.5% of Neuf. The other major shareholder is French trading group Louis Dreyfus, which holds 29.5% of the firm’s capital and is now considering selling its stake. Vivendi, in turn, owns 56% of SFR, while British mobile giant Vodafone Group PLC owns the other 44%.

As telecom firms seek to deliver an ever richer array of products over broadband, gaining market share is becoming increasingly valuable. For Vivendi, acquiring the rest of Neuf would cement its position as a player in mobile, fixed, and broadband services, and would allow it new ways to sell products from its Universal Music Group unit and movies from its pay-TV platform Canal Plus.

Neuf has become the second-largest broadband company in France, after former state-owned monopoly France Telecom SA, by offering so-called “triple play” packages of television, telephone, and Internet access for about €30 per month. Neuf’s other major competitor is Iliad SA, another successful start-up with a similar business model that markets “triple play” deals under the brand name Free. 

Both Neuf and Free launched after French regulators opened up the telecom sector to competition in the late 1990s, ending the monopoly of France Telecom. In an effort to level the playing field for new entrants, regulators ordered France Telecom to rent out part of its telephone network to competitors.

Those efforts have born fruit. Neuf and Iliad having grown into profitable firms able to compete aggressively with France Telecom and with market capitalizations of €7.6 billion and €4.07 billion respectively. French consumers now have access to high-quality broadband services, available at a low cost, and have also been avid in taking up new services like Internet-based calling and television delivered over the Internet, known as IPTV.

Some 22.5% of French have access to broadband connections, ranking the country 13th out of 30 countries in terms of broadband penetration rates, ahead of the U.S. and Japan, but behind leaders Denmark and the Netherlands, according to the Organisation for Economic Co-operation and Development. French consumers pay $3.70 per megabit per second of broadband, compared with $12.60 per megabit per second in the U.S. and $5.20 in the United Kingdom according to the OECD.

That fierce competition has upped the stakes for the French broadband market and a deal for the rest of Neuf could cost Vivendi dearly. Neuf’s share price has skyrocketed nearly 40% since January. News of a possible deal was first reported Monday by French weekly newsletter La Lettre de l’Expansion, and followed by a more detailed report in le Figaro on Tuesday.

If the deal were to go through it would likely quell Vivendi’s appetite for acquisitions for awhile. In early December, Vivendi announced plans to acquire a controlling stake in videogame maker Activision Inc. by merging its own gaming division into Activision and contributing cash to form a new company: Activision Blizzard. In a complex transaction, which values all of Activision at $8 billion, Vivendi will pay $27.50 per share and end up with up to 68% ownership of the new company.

Neuf’s shares were suspended in trading on the Paris bourse on Tuesday morning. The firm released a statement saying: “Neuf Cegetel, having been informed of discussions between its two main shareholders, SFR and the Louis Dreyfus group, has requested the suspension of trading on its shares, pending further developments on these discussions.”

Leila Aboud is a writer for The Wall Street Journal

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In morning trading, the Nasdaq Composite rose 13.25 points, or 0.5%, to 2679.73. Morgan Stanley’s high-tech index added 2.18 points to 628.30, and the Nasdaq 100 Index of nonfinancial stocks grew 9.19 points to 2108.50.

Chip-technology maker Rambus gained 80 cents, or 4%, to $20.63 on the Nasdaq Stock Market after the SEC ended its investigation and recommended no action be taken.

EBay advanced 55 cents to $33.90 on Nasdaq after Citi backed a “buy” rating and raised its fourth-quarter estimates. Analyst Mark Mahaney pointed to several motivating factors, including valuation, recent developments such as eBay’s re-entry into Japan, robust e-commerce trends and Skype deals with MySpace and in Europe.

Apple rose $3.35 to $188.84 on Nasdaq after Bear Stearns, reiterating an “outperform” rating, raised its 2008 price target to $249 from $243. In a research note, analyst Andrew Neff cited channel checks indicating strong Mac and iPod sales.

He added, however, that “while we’re encouraged by Apple’s evolution into a company with multiple growth engines — including our thesis that iPhone is emerging as a personal digital lifestyle device and view that video could be the next big driver — we note that Apple will need incremental products (e.g., 3G iPhone, ultra-portable Mac, other products ‘TBA’) in early ’08 to buck seasonality issues.”

Elsewhere, solar-energy company Hoku Scientific surged $2.36, or 27%, to $24.83 on Nasdaq after it signed an agreement with Merrill Lynch to borrow about $185 million for a polysilicon production plant.

Videogame retailer GameStop rose $1.26, or 2.2%, to $59.18 on the New York Stock Exchange on news that it will replace Dow Jones in the S&P 500-stock index. Dow Jones, which publishes The Wall Street Journal, is being acquired by News Corp. in a pending deal.

Finisar, a maker of fiber-optic products, gained 12 cents, or 7.5%, to $1.72 on Nasdaq after posting a narrowed fiscal second-quarter loss of $9.8 million, compared with $30.3 million a year earlier. Revenue slipped 6.9% to $100.7 million.

Nasdaq Rebounds 1.8% Wednesday

The Nasdaq Composite Index rebounded 1.8% Wednesday on strong jobs and productivity data. Intel and Apple shares climbed on upbeat analyst reports, while Novell fell after delaying its earnings report.

The Nasdaq Composite gained 46.53 points to close at 2666.36, reversing three days of losses. Morgan Stanley’s high-tech index added 13.88 points to 626.04 and the Nasdaq 100 Index of nonfinancial stocks rose 40.25 points to 2099.31.

Total volume on the Nasdaq Stock Market was 2.6 billion shares. Advancers greatly outpaced decliners, 1,969 to 971.

Intel rose 91 cents, or 3.5%, to $27.22 on the Nasdaq Stock Market after Thomas Weisel upgraded it to “overweight” from “market weight.” World-wide demand for personal computers will continue in 2008, helping the chip maker, analyst Kevin Cassidy said in a note, and Intel maintains a competitive advantage over rival Advanced Micro Devices that will keep it “fairly immune from any price wars through 2008, in our opinion.”

AMD closed at a fresh 52-week low Wednesday, giving up 34 cents, or 3.7%, to $8.91 on the New York Stock Exchange.

Novell slipped 10 cents to $6.94 on Nasdaq after it delayed its fiscal fourth-quarter results because of a Securities and Exchange Commission accounting probe. The software developer was scheduled to report earnings after Wednesday’s market close.

Shares of InterDigital surged 18%, or $3.13, to $20.13 after a federal judge confirmed a $134 million award stemming from a 2006 patent-infringement suit against Samsung Electronics.

The arbitration tribunal that handed down the $134 million judgment also set the royalty rates to be applied to Samsung sales of covered wireless products in 2006, resulting in an estimated royalty obligation of $17 million to $21 million for the first half of the year.

Comcast dropped $2.55, or 12%, to $18.18 on Nasdaq after it warned that its new subscriber additions and other key metrics will fall short of prior estimates. The cable provider blamed economic turmoil, which has affected customer spending, and increased competition for the revisions.

Online-media company Sohu.com gave up $1.83, or 3.1%, to $58 on Nasdaq despite lifting its fourth-quarter revenue estimate to $55.5 million to $57.5 million, compared with an earlier forecast of $53.5 million to $55.5 million. It cited strong performance from online games and advertising for the raised outlook.

Technology-consulting firm Electronic Data Systems gained 7.5%, or $1.49, to $21.38 on the NYSE after announcing a plan to buy back $1 billion worth of stock over the next year and a half. The company also revealed plans to replace its outgoing board chairman with its CEO.

Maxim Integrated Products rose $1.34, or 5.8%, to $24.51 on Nasdaq after the chip maker’s former CEO agreed to settle a backdating lawsuit. He will pay about $800,000 in fines and returned income.

Cisco Systems added 52 cents to $27.48 on Nasdaq after the networking giant announced it had appointed a new technology chief. Padmasree Warrior was formerly the CTO for Motorola.

Andrew Lavallee and Emily Flitter are writers for The Wall Street Journal’s online edition.

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In an interview, Mr. Sorrell said financial-market problems and falling U.S. house prices raise concerns about the outlook for next year, but it’s “too soon” to assess their impact.

“The issue that I’m more concerned about is what happens after the elections in America in 2008,” he said. A new administration might try to deal early in its term with the problems of budget and trade deficits and a weak dollar, he said, and that could hurt economic prospects in the short run.

“If there’s anything unpleasant to do, you do it earlier rather than later,” he said.

For next year, he said, the Beijing Olympics, the U.S. presidential elections and the European soccer championship are expected to add about 1% to ad spending, helping offset any economic softness.

Longer term, Mr. Sorrell said WPP aims to increase its business in the fast-growing emerging markets to reduce reliance on the less-dynamic U.S. and Western Europe. He said WPP now gets about a quarter of its $12 billion in annual revenues outside those markets and aims to raise that share to a third over the next five to 10 years.

In Moscow for a WPP board meeting, Mr. Sorrell said WPP wants to quadruple the size of its Russian business over the next five years.

“Our business in Russia is the smallest in the BRICs, but it’s the fastest-growing” he said, referring to Brazil, Russia, India and China. New acquisitions in Russia this year have brought WPP annual revenue in the region to about $125 million, growing at about 35% this year. WPP wants to bring that to about $500 million over the next five years, he said.

Mr. Sorrell said forecast economic growth in the BRIC countries, adjusted for increasing spending on marketing and advertising, could bring emerging markets’ share of WPP’s revenues to about 38% by 2014 — from about 25% now — even without additional acquisitions.

In Russia, WPP’s main business is a partnership with media-services company Video International Group. In September, WPP announced the acquisition of 49.9% of PBN Holdings LLC, a strategic communications consultant with operations in the U.S. and around the former Soviet Union. Mr. Sorrell noted the PBN deal also helped WPP in its drive to reduce reliance on traditional advertising, shifting to areas like public relations, which have increasing influence on consumers.

Gregory L. White is a writer for The Wall Street Journal’s online edition wsj.com

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Eventually, it hopes to refine the system to allow it to predict what products and services users might be interested in even before they have specifically mentioned an area.

As the industry watches the Palo Alto, Calif., start-up to see if it can translate its popularity into bigger profits, Facebook has made the new ad plan its top priority, say people familiar with the matter. The plan is at an early stage and could change, but the aim is to unveil a basic version of the service late this fall.

A news-feed ad from Facebook’s current program

People familiar with the plan say Facebook wants to accomplish what Google Inc. did with AdWords, which lets anyone place ads next to search results by buying “keywords” online. It brought in the majority of the search engine’s $10.6 billion in revenue last year. A Facebook spokeswoman acknowledged the company is working on an ad system, but declined to provide details.

Most users of Facebook treat it as a sort of online scrapbook for their lives — posting everything from basic information about themselves to photos to calendars of events they plan to attend. They create a social network by linking their own Web pages with the pages of other users they consider online “friends.” Facebook already uses some information from users’ pages in a rudimentary system that allows advertisers to go online, and starting at $10, buy simple “flyers” that run as boxed ads on the left-hand border of Facebook pages. But for targeting, advertisers are limited to age, gender and location of the user.

The new service would let advertisers visit a Web site to choose a much wider array of characteristics for the users who should see their ads — based not only on age, gender and location, but also on details such as favorite activities and preferred music, people familiar with the matter say. Facebook would use its technology to point the ads to the selected groups of people without exposing their personal information to the advertisers.

These ads would show up differently than the banner ads and boxed flyers that appear on the borders of Facebook pages, say people familiar with the plan. Instead, they would be interspersed with items on the “news feed,” which is a running list of short updates on the activities of a user’s Facebook friends. In addition, the ads would show up on Facebook pages that feature services provided by other companies, one person says.

Facebook has already had some success in getting users to notice similar ads created in a separate initiative. Under that program, launched last year, advertisers say they typically spend about $150,000 for a three-month campaign that gives them a special page on Facebook, as well as the news-feed ads. But customizing these campaigns can be a costly process for Facebook, which has to dedicate staffers to the efforts.

Facebook hopes allowing advertisers to buy customized ads online will be a less labor-intensive way to take advantage of the personal data people reveal on the site. A key part of this new plan is that Facebook would use an automated system to process transactions instead of requiring advertisers to work with a Facebook representative, people familiar with the plan say.

Next year, Facebook hopes to expand on the service, one person says, using algorithms to learn how receptive a person might be to an ad based on readily available information about activities and interests of not just a user but also his friends — even if the user hasn’t explicitly expressed interest in a given topic. Facebook could then target ads accordingly.

Getting this right is important for Facebook, which was founded in 2004 by then-Harvard student Mark Zuckerberg and which has become Silicon Valley’s latest darling.

While the Web site had roughly 30.6 million visitors in July, the company says it needs to do a better job profiting from its huge user base.

That’s because unlike other hot Web start-ups such as MySpace and YouTube, which were acquired by large Web and media concerns, Facebook wants to stay independent and potentially go public. Last year it stepped away from talks with Yahoo Inc. and Viacom Inc. to be acquired for close to $1 billion. The start-up’s investors have publicly said they hope to take Facebook public at a valuation approaching $10 billion. That would require the company to generate far more revenues and profits than it currently produces.

Finding a way to use people’s interests and personal connections to show them relevant ads has “always been the promise of social networking, but we’re still waiting to see the big successes,” says Debra Aho Williamson, an online-advertising analyst at New York-based eMarketer Inc.

Facebook is on track for $30 million in profit this year on $150 million in revenue, say people familiar with the matter. About half of that revenue is expected to come through an ad deal with Microsoft Corp. that lets Microsoft sell many of the major display ads on Facebook’s U.S. site. The deal will likely bring in $200 million to $300 million for Facebook through 2011, and potentially much more if Facebook’s traffic grows rapidly, say people familiar with the matter.

However, advertisers say the addictive quality of social networking means users are so busy reading about their friends that they hardly notice display ads and, even if they do, are loath to navigate away to an advertiser’s site. Advertisers say the percentage of people that click on display ads is lower on Facebook, News Corp.’s MySpace and other similar sites than on other popular Web sites like Yahoo Finance and CNET Networks Inc.’s News.com site.

As a result, Facebook has needed to diversify its revenue sources away from just display ads. The new ad plan is being spearheaded by Matt Cohler, vice president of strategy and business operations, and Chamath Palihapitiya, vice president of product marketing and operations, with input from CEO Mr. Zuckerberg, say people familiar with the matter.

Facebook’s plan, if it works, could be potentially powerful for advertisers. While Google’s keyword-targeted ads aim at “demand fulfillment” — that is, they are triggered by Internet searches conducted by people who are actively looking for something that they want — Facebook’s new ad plan could help advertisers address an area called “demand generation.” This involves using available information — not just from a user but also the activities and interests of his “friends” on the site — to figure out what people might want before they’ve specifically mentioned it.

“It’s about saying, ‘We are going to take this information because you’ve acknowledged that you have an interest in X, Y and Z,’” says David Blum, who oversees the interactive division of Sausalito, Calif., ad agency Butler, Shine, Stern and Partners.

But Facebook’s new plan faces hurdles. It could upset Microsoft, which is itself trying to build technology to make it easier for advertisers to place targeted ads on Facebook. A Microsoft spokeswoman declined to comment on this issue.

While Facebook plans to protect its users’ privacy and possibly give them an option to keep certain information completely private, some Facebook users might rebel against the use of their personal information for the company’s gain.

And the perceptions that targeted ads create can be as much of a problem as the reality. “Most people don’t realize how targeting works; it becomes so good that even though it’s anonymous, you feel like they know you,” says Rishad Tobaccowala, CEO of Publicis Groupe-owned consulting firm Denuo Group. However, he says Facebook needs to be careful in implementing any targeted ad system, lest loyal users “find it creepy.” 

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