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Facebook's New Weapon and Cost of Privacy Battle

Facebook's long-awaited addition of the ability to "check in" could be a game changer for the social network's revenue stream.

The possibilities are obvious and seemingly endless: targeting ads based on the restaurants, bars and shops where users are checking in, potential partnerships with major retail chains and their customers, and deals offering discounts if Facebook users walk in the door.

eMarketer projects that Facebook's 2010 ad sales will approach $1.3 billion. As more people opt into 'places' and more companies offer incentives to check in, this could could significantly add to that number in 2011.

Just this week, Lou Kerner started as Wedbush Securities' social media analyst—the first of his kind on Wall Street, he examines public companies through the lens of social media. (He initiated coverage of Google, his first company, on Monday with an 'Underperform,' citing the threat from Facebook.)

Tangled Web//Profits & Privacy - See Complete Coverage
Tangled Web//Profits & Privacy - See Complete Coverage

Kerner tells me location is a "natural transition" for Facebook, saying e thinks it'll help Facebook, as well as FourSquare, which has 2.5 million users, grow traffic and ad revenue.

The addition of local will make already-powerful social ads even more effective. Kerner pointed me back to a Nielsen study from April that found adding a social component makes users far more aware of an ad and grows their interest in buying products.

Deploying ads close to where consumers can make a purchase? A purchase from a place your friends have just been? That could be incredibly powerful.

The question now: What's the damage to Facebook of all those privacy concerns? Not long after Facebook introduced 'Places,' the ACLU's Northern California Office issued a criticism, saying Facebook's rolling out "here now," privacy later.

Facebook quickly responded, saying "Facebook Places sets a new standard for user control and privacy protection for location information." Facebook says having just one control to turn on and off "here now" is better than the two-step control the ACLU is demanding. Bottom line, Facebook says people must opt in to "check in."

Facebook will likely be able to mitigate any long-term damage of privacy concerns, because they know they're under a microscope, and they seem to be acutely aware of the risks that come with location. Kerner tells me he's unconcerned about privacy having a negative impact on the company and its growth. The true test will come once the product rolls out and critics can see for themselves what the process of opting in—or out—is like.

Look for on-air reports from Jon Fortt, Hampton Pearson, and Julia Boorstin, Wednesday August 18 through Friday August 20—part of CNBC's specal series "Tangled Web: Profits & Privacy."

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.