Facebook has the hot hand in social networking. By a number of accounts it is growing more quickly than its larger rival, News Corp (NYSE: NWS) unit MySpace. Some industry estimates put the value of the company at close to $10 billion.

Now, Facebook is taking a real gamble to see if it can increase revenue. The company is working on a system that would allow advertisers to target Facebook members based on the information they give in their profile. Let the privacy advocates chew on that.

The Wall Street Journal writes (subscription required) that marketers will be able to target based on "age, gender and location, but also on details such as favorite activities and preferred music." As one concerned advertising executive told the paper "Most people don't realize how targeting works; it becomes so good that even though it's anonymous, you feel like they know you.."

Facebook's problem is that it needs the money. Industry estimates say that the company will make $30 million on $150 million in revenue this year. That makes the company tiny by almost any standard, and means that keeping a high valuation is difficult.

The Facebook action could trigger a response from the largest social network, MySpace. It it can set up a similar targeting system, its size might allow it to take more share of the new marketing market than Facebook could accumulate.

But, as leaders in the Web 2.0 space, both companies risk the charges thrown at Google (NYSE: GOOG). Web companies don't care about privacy if they can make money.

Douglas A. McIntyre is a partner at 24/7 Wall St.