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Facebook, in the midst of a high-stakes negotiation over its future, has just dramatically upped the ante. How? The social network is quietly starting to promote its long-rumored ad-targeting system — under a clever costume. Facebook has disguised the system as a simple upgrade to Flyers, its much-derided system for selling cheap ads on a self-service basis. This new system shares little with Flyers except its name, however — and poses an obvious threat to Google.

Like Google's AdWords, Facebook's Flyers Pro charges per click. Unlike Facebook's old Flyers, which only let advertisers target small groups like students and alumni of a particular college, Flyers Pro lets advertisers target by city, gender, age, relationship status, employer, educational level, political views, and — are you listening, Google? — keywords. Facebook, of course, has the data, freely given by its users to target to those characteristics. And Facebook now promises "detailed reporting" — something the old Flyers system was roundly mocked for lacking.

Facebook executives may well be hoping that Google and Microsoft, the front-runners to take a strategic stake in Facebook for as much as $500 million, haven't paid much attention to the self-service, pay-per-click ad system it rolled out just last month. It would actually be to Facebook's advantage, at this point, to downplay the importance of Flyers Pro. That's why, I suspect, it's presenting this as a simple upgrade to the old Flyers system. But make no mistake: This system poses a direct threat to Google's AdWords and Microsoft's AdCenter.


Ah yes, Microsoft. It's widely thought that Microsoft bought up all of Facebook's U.S. banner-ad inventory through 2011. That's not entirely true: Facebook actually reserved a small percentage of its domestic ad space for direct selling. It wants to gain more control over its U.S. inventory, though.

And that's why Microsoft went into the current round of negotiations with an advantage. The simplest way to unwind the current ad deal with Microsoft is to get the software giant to agree to replace it with a new, less limiting one, in exchange for letting Microsoft take a stake in the company. To take full advantage of its in-house advertising system, Facebook needs more than just a sandbox to play in. It needs a critical mass of ad space and advertisers to realize the technology's potential.


Now, everything has changed. Facebook's ad-targeting technology is no longer just talk and promises. CEO Mark Zuckerberg has decided, at a curiously tense moment, to show his hand — and at the same time, hope no one will notice it. The first gambit is well-played. The second? Too late, Mark. Your cards are showing.