Facebook (News - Alert) garnered a lot of scrutiny in the days leading up to its IPO. What emerged from the public’s investigation was a distinctive flaw that investors could not ignore. Facebook is not generating the mobile ad revenue that a company valued at such should.

Facebook responded to these concerns by incorporating Sponsored Stories into its mobile application. Since then, Facebook has avidly defended Sponsored Stories as the optimal solution to advertising through social media. But that was before the lawsuit.

Today, a judge denied Facebook’s offer to settle the Sponsored Stories lawsuit for $20 million. The plaintiffs, the judge worried, would not be compensated fairly by that seemingly arbitrary amount. The incident that led to the lawsuit, was posting people’s faces in Sponsored Stories without their consent. It is perhaps this reason that has led to Facebook’s new experiment.



Facebook image via Shutterstock

Facebook is flirting with the idea of allowing marketers to drop ads directly into people’s news feeds – users that aren’t fans and haven’t ‘liked’ anything about a company’s products in the past. These are stipulations of Facebook’s paid ad service, Sponsored Stories, lest they are published on the side bar.

The experiment is risky considering that some users may feel that the site is already cluttered with ads as it is. In addition, some people may see these practices as only slightly less offensive as using someone’s face without his or her consent.

But Facebook’s extreme ad ideas stem from reports indicating that Facebook’s stock has dropped nearly 40 percent since its IPO. Critics are once again pointing to Facebook’s shortcomings in generating revenue from mobile ads as a significant factor.

Regardless if Facebook plans on changing anything with Sponsored Stories after the settlement is approved, the fact that the company is now looking to expand the site’s ad venue outside of its acclaimed application indicates a new path for advertising on Facebook.

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