After the laugh, though, the reality set in and Smith started feeling a bit duped by Facebook and its seeming use of her personal data without her permission.
She blogged about the incident on her consulting Web site, and rumors began to spread that Facebook had altered its policies, allowing third-party advertisers to place members’ photos in ads. Smith later learned differently from Facebook.
"The issue is not with Facebook but with third-party application developers," Smith said. "If you have a friend that signs up for quizzers, mafia mania, or other applications, then those application developers have certain rights to your data as a Facebook user."
But not in ads. And now, Facebook had quite a public relations ordeal to contend with.
“The controversy and misunderstanding were the result of a developer and ad network breaking our policies and the user being confused that the ads were Facebook social ads,” Facebook policy manager Barry Schnitt told CNBC. “We have had some similar policy violations in the past and have dealt with them swiftly and decisively, just as we did in this case — within hours of being notified, the ads were removed, some ad networks were banned from Facebook, and developers were warned.”
Though the advertisers were banned from Facebook, the incident hints at the growing dilemma the new age of Web advertising presents — not only to social networking sites, but also to site users.
More from CNBC.com:
With more money being allocated to digital communication strategy, ad agencies are constantly looking for ways to get their product to the right audience more efficiently. And sometimes, they're overstepping. It's an issue that would have been difficult if not impossible in other advertising mediums, according to David Wiener, a social media expert with Ogilvy & Mather Worldwide.
"This is a new arena, and as technology and platforms evolve, privacy policies will be written to evolve as well," he said.
Meanwhile, ad networks like SocialReach and SocialHour are learning as well. The two were banned by Facebook in June for infringing on the platform’s policies. SocialReach continues to work with Facebook on ultimately returning to the platform, according to Phil Hirsch, a SocialReach spokesman.
“We took a big hit from Facebook and we are trying to do the best to get back to the Facebook platform,” he said. “Now it is just a matter of figuring out the rights and the wrongs [of advertising on social networking sites.]"
Ogilvy's Wiener said third party developers will have to be more responsible with users’ information going forward, especially now that the sharing of content has become far more prevalent.
“My sense is that there is far more sharing and there are far more robust platforms to be able to share this information than ever before,” Wiener said. “From a marketing perspective, messages can be tailored to the user...platforms must be very upfront about what is allowed.”
Wiener said engagement between marketers and users, or co-creation, will be the primary method of reaching out to users in the near future.
“Marketers will have a more clear idea of whom they are going to reach and the consumer will see a lot more targeted messages,” Wiener said. “Co-creation is super hot. You are seeing traditional advertising response rates go down as users expect to be part of that conversation, part of that engagement.”
Despite the attempts by social networking sites to create more stringent platform policies, users should actively take precautions to protect themselves. Julius Harper, Jr., founder of the popular group "People Against the New Terms of Service", advises users to check their privacy settings regularly and disable social ads and Beacon.
"The best rule is, if you can't think of a reason for a person/company/application to have access to your information, then click the 'no' button," Harper said. Users should read Terms of Service before blindly accepting by clicking "yes".
It's something Cheryl Smith definitely believes in. And yes, she's still on Facebook.
"Facebook is a fundamental shift in the way people are communicating," she said. "For me, its benefits outweigh these privacy disputes."