(Corrects spelling of Acxiom Corp, instead of Axciom, paragraph 18.)
By Joel Schectman
WASHINGTON, June 13 (Reuters) - Facebook is installing new controls it says will better inform its members about the way companies are targeting them with advertising, the latest step to quell a public outcry over the company's mishandling of user data.
Starting on July 2, Facebook Inc for the first time will require advertisers to tell its users if a so-called data broker supplied information that led to them being served with an ad. Data brokers are firms that collect personal information about consumers and sell it to marketers and other businesses.
Facebook has also set up new procedures for the handling of names of potential customers supplied by data brokers. Advertisers seeking to upload lists of these prospects onto Facebook's platform will first have to promise that the data vendor obtained any legally required consent from those consumers.
Facebook says the new policies will create more transparency for its users and require more accountability from advertisers.
"We are not taking a position on whether third-party data is inherently good or bad," said Graham Mudd, a director of product marketing at Facebook. "We are taking a position on the importance of having the right to use the data and for it to have been sourced responsibly."
The new policies are the second big push by Facebook this year to shore up its policy regarding data brokers.
On March 28, Facebook moved to banish data brokers from its platform as part of efforts to burnish its image. But the company quickly softened its stance after big marketers threatened to pull their ad dollars from Facebook, according to three people familiar with the decision. Advertisers said the restrictions on data brokers would hurt their ability to aim their ads at customers most likely to buy their products.
Details of advertisers' pushback, and Facebook's retreat, have not been previously reported.
A Facebook spokeswoman confirmed that the company shifted its position within days because of “feedback from advertisers." She said sponsors will still be able to use information purchased from third-party vendors to target Facebook users with ads, albeit under stricter conditions than before.
Wednesday's move is another effort by Facebook to repair its reputation amid a series of scandals. Among the most damaging was the revelation that political consulting firm Cambridge Analytica harvested private information from the Facebook profiles of 87 million people without permission.
In recent public appearances by executives and new television spots, Facebook has been promoting its efforts to keep its users safe and protect their personal information.
But the initiatives present the Menlo Park, CA company with a tricky balancing act. While it is touting greater protections for its users, its advertisers are demanding the ability to target potential customers with ever-greater precision.
"Facebook is caught between tremendous pressures from marketers, and privacy demands from policy makers and the public," said Kathryn Montgomery, an American University communications professor, who specializes in media and privacy issues.
Data brokers are firms that have made billions of dollars gathering and selling Americans' personal information, including how much money they earn, what they buy and how many children they have. They get their data from a variety of sources, including public records as well as transaction histories compiled by credit card companies, retailers and other merchants.
Many consumers have no idea they are being tracked in this way. And while the practice is legal in the United States, it has fueled concerns among privacy advocates about the accuracy of this highly personal information, as well as the methods by which it is collected, bought and sold.
Since 2013, Facebook had collaborated with major data vendors including Experian Plc and Acxiom Corp . Using personal information about consumers provided by the brokers, Facebook built an ad-targeting tool on its site known as Partner Categories. Advertisers using the system could pinpoint their ads to Facebook users who met certain criteria, say, those who owned their own homes, just had a baby or drove luxury vehicles. Partner Categories was particularly powerful because it allowed marketers to direct their ads based on information that users may never have disclosed to their friends on Facebook.
Facebook announced March 28 it was shutting down Partner Categories. That same day, the company told ad agencies they would be prohibited from uploading lists of potential prospects acquired from data brokers into Facebook.
Together, those two steps would have effectively amounted to a total ban of data brokers from the site.
Facebook's initial move was a blow to consumer-goods manufacturers that lack direct relationships with the people who buy their products, marketers said. Car makers, for example, often know little about consumers who walk into dealerships. Ditto for food manufacturers, which sell to supermarkets, not grocery shoppers.
To target customers on social media, these companies rely on data brokers to guide them to the best prospects, according to interviews with current and former data broker executives.
Ad agencies besieged Facebook to reconsider, according to three people familiar with the situation.
One executive conveyed a blunt message to Facebook: “'Dollars would go to other places if we can’t find suitable alternatives,'” she recounted to Reuters.
On March 30, just two days later, advertiser complaints persuaded Facebook to allow them to continue to target Facebook users with ads based on uploaded customers lists purchased from data brokers. The company told Reuters its Partner Categories tool will still be phased out by October.
Arkansas-based Acxiom, one of the nation's largest data brokers, told Reuters it researches the sources of its consumer information carefully, using methods that are "not only legal, but also just and fair to the individual."
Experian, another major vendor based in Dublin, Ireland, did not respond to multiple requests for comment on their privacy policies.
Many Americans are mistrustful of data brokers. A Reuters/Ipsos poll of 1,780 people in the United States found that, of those who were familiar with the brokers, 68 percent said they were opposed to social media firms working with those information vendors. The poll found 59 percent of those who were familiar with the data brokers said they would use a social media site less if they knew the tech firm was partnering with them. The poll: (tmsnrt.rs/2JzLui4)
The poll conducted between May 15-21 found 751 were “somewhat” or “very” familiar with data brokerages. The poll has a credibility interval, a measure of the poll’s precision, of 4 percentage points.
Reporting by Joel Schectman in Washington Additional reporting by David Ingram in San Francisco Editing by Damon Darlin and Marla Dickerson