Privacy challenges by public interest groups and the FTC are threatening to dismantle or seriously curtail the behavioral targeting model of interactive advertising as it stands today. Fearful of damaging relationships with their readers, many publishers are removing third-party widgets and other technologies when those technologies are found to capture and sell user data without the user’s express permission.

Even Facebook itself has cracked down on unauthorized data scraping. Recent “Do Not Track” efforts are trying to move choices about data sharing from publishers to the people via browser technology. But these are merely symptoms of a larger problem with interactive advertising: a lack of transparency. It’s a problem that new social tools will play a significant role in addressing.

Rather than an endgame where consumers completely block any sort of data sharing, I see a future where marketers take the high road and both sides benefit from better quality data, advertising and content.

Permission Marketing

The concept of “Permission Marketing” isn’t new; in fact, Seth Godin’s 1999 book about “turning strangers into friends and friends into customers” seems remarkably prescient in today’s age of “Friending,” “Liking,” and “Following.” Godin told the (then e-mail-dominated) interactive industry, “By talking only to volunteers, Permission Marketing guarantees that consumers pay more attention to the marketing message. It serves both customers and marketers in a symbiotic exchange.”

Today, technologies like Facebook Connect and OAuth are helping to redefine the concept of permission marketing. Using these technologies, brands, retailers, publishers and other sites are able to actively establish a permission-based relationship with their users and customers on their own websites. Now websites have the opportunity to embrace transparency, to be upfront with people during the registration process about how their data will be used, as well as how it will benefit both parties.

We have a new generation comfortable using Facebook and other mobile apps and who, according to recent survey data, are quite willing to share personal information with companies and brands in exchange for value provided. They are also relatively unconcerned about the security of data they share on social networks. The bottom line is that this type of authorization-based relationship between brand and user is likely to become the norm.

This Year’s Model

So what exactly is the data and advertising opportunity for sites? The Huffington Post is the poster child for this new social data-based permission marketing approach. Readers register on the site using their existing Facebook, Twitter or other social identity, thereby giving HuffPo access to data with which the site can personalize the user experience.

For readers, this means they can see what their friends are reading and sharing on their site, giving them a powerful social filter for relevant content. It also means The Huffington Post can sell advertising on their own site based on everything they know about the user from a social perspective.

I had a chance to meet Huffington Post CEO Eric Hippeau at last year’s IAB leadership summit, where publishers get together to talk about the future of interactive advertising, and he shared with me that their integration and application of Facebook Connect and similar technologies to create a social news experience has been the key driver of their phenomenal traffic growth over the past year plus. Social advertising is also a key source of their revenue growth. HuffPo considers their site to be in the category of social media, and structures their ad sales team to serve that unique buyer. For publishers and advertisers, this approach has the power of Facebook ads, yet is superior because it combines the best of both worlds –- deep context plus social data.

Social Sign-On

While Social registration, also known as Social Sign-On, is the foundation for this new relationship-based model, the layers on top of that foundation are the most promising for the future of advertising. In addition to basic demographic targeting, sites could offer advertising based on interest data, targeting movie fans or iPod fans for example. Sites could also sell against social influence and activity — factors such as the number of friends, propensity to share and history of driving referral traffic, or even the number of items “Liked” as an indicator of engagement. Reward programs driven by game mechanics are a key part of the nurturing process in this new model, where a loyal, engaged and most importantly non-anonymous audience is the new currency of advertising.

Sites and brands need to ask themselves: What am I offering people that they will truly value in exchange for permission to talk to them as a friend and not an anonymous user? Badges may not be right for every site experience, but successful apps and other web experiences like those on The Huffington Post prove that it is not an unattainable goal.

As with all new models, there are challenges to address. Sites need a critical mass of users to grant them these permissions in order to sell advertising effectively. Privacy concerns with social network data will evolve over time and regulatory pressure will certainly cause the interactive industry some headaches as we move to a new equilibrium. But it is inevitable that a permission-based model will prevail, and those that are able to rapidly embrace this model and experiment with its possibilities will win higher CPMs, new ways to differentiate against the competition, and a more loyal audience.