“However, to make such micro-targeted advertising practical, the social networks need to motivate their users to disclose information relevant to advertisers. ”

This is what makes most complaints in the facebook-makes-money-off-of-you vein a complete misunderstanding of technology.

For the purposes of advertising, facebook does not need you to disclose relevant information to anyone but facebook. Advertisers need never come anywhere near that information. The data doesn't even need to be sent to them in aggregate. All advertisers need to do is say “I want to target this demographic”. They then need to get no data other than “someone from this demographic clicked on your ad”. That's it! Facebook has the data, facebook does the matching, facebook provides feedback in clicks—this, yes, in aggregate—and no other information needs to be exchanged.

There is a broader argument being made here, about exposing personal information and what have you, but facebook doesn't need you to make your information public so that advertisers can get to it, they want you to make your information public so that that guy you met at a party last night can find you, friend you, and start liking your posts, thus making you feel that your posts are getting more attention, thus making you feel good about yourself, thus making you want to post more, thus making others want to get on more to read your posts, etc, etc. Of course, they also want it public so that guy over there can look you up and see some of your pictures, even if he doesn't necessarily intend on friending you. That way, said guy is also on facebook, using it more than before.

So I would argue that how public information disclosure is on facebook is far more about retention and usage than it is about advertising. Advertising can be and, at least as far as my understanding of it goes, is done without having to disclose anything to the advertiser. And that's as it should be, since the technology lets them not leak that info. Why would they want to provide that information if they can achieve the same results without doing so?

With that in mind, I wish the facebook privacy argument would stop presenting advertiser information swapping as a real issue. There are reasons that privacy is an issue on facebook, foursquare, etc., (indeed, this app is an excellent example) but I don't think advertising is one of those reasons. That can be done with very little information revealed, even in aggregate.

(It's possible I missed a detailing somewhere of facebook explicitly exposing information to advertisers in a way different from what I mention above; if so, I'd love a link and I'll sit down and be quiet now :) It's also true that between fb advertisements and installing fb like buttons, it's possible to gather more data on a user than concentrating on advertisements alone. But that's a complaint about fb giving your information to apps, and while it's a lot harder to tease out the motivations there, I think they still derive a greater benefit from that in terms of retention and usage than they do in terms of advertising.)