In an online video ad for Unilever’s Axe deodorant body spray, a guy is cornered in a shower by a gaggle of women. The steamy ad, called “Fever” and aimed at men on social networking sites, including Facebook and MySpace, had 1 million views in April. Some 10,000 viewers liked the spot so much that they shared it with friends.

The ad, tailored and optimized for each viewer by Sharethrough, a start-up company in Stanford, Calif., is one of many attention-getting spots it is sending to social network users it believes are most likely to view the ad and pass it along to others.

While most online advertisers can find out if their ad spots are bigger hits on MySpace or Bebo, Sharethrough can determine, within a network, whether a particular brand hits better among women in their 30s, say, or 45-year-old men, and if they are more likely to watch the video and pass it along if it comes to them during a Fantasy Football session or while taking a fashion quiz. At the end of each video–some of which are programmed to call the viewer by name–social networkers see an icon asking them to share the spot with friends.

Not only does Sharethrough’s software feed that information back to advertisers; the system also optimizes results, by showing each video most frequently to users who are likely to share, at times when they are likely to watch, then encouraging them to share it with their most responsive friends. The proprietary core of the technology is the behavioral economic model the company uses to determine the relative value of shares to views and thus prioritize users who spread the message over those who simply watch. When friends choose to watch a shared video, they are taken to Sharethrough’s own application so its software can access and store the users’ data, creating a record of users who respond best to viral messages.

“We can figure out who might share it, who is watching and what else they are doing at the same time,” says Dan Greenberg, founder and chief operating officer of Sharethrough.

The sharing feature helps the company meet requirements set by clients like Twentieth Century Fox, Warner Brothers, Sony, Unilever and Electronic Arts. They negotiate contracts to pay Sharethrough a flat rate for a desired number of views. Sharethrough delivers a small percentage of its fees to the developers whose applications it accesses. Since launching 18 months ago, the group has landed over 100 contracts at rates ranging from $30,000 to $100,000. The model reflects an industry-wide trend toward metrics of “engagement” over the traditional click-through rate.

Software like Sharethrough is best suited to industries, such as Hollywood, where creating buzz has a proven record of driving revenues. Says Jonathan Helfgot, senior vice president of marketing at Twentieth Century Fox: “There’s an element to all our campaigns of getting a film in the culture, making people feel that the film is part of their world and if they don’t go see it they will be missing out on life,” he says. “It’s similar to social networks that tell you ‘everyone’s on them’ so if you’re not on them, you’re missing out.”

Helfgot admits he’s taking Sharethrough’s word that this is what 18- to 25-year-old social networkers are seeking, since “they live in that world of peer-to-peer interaction where so many people trying to market to kids wish they could be.” Indeed, Greenberg, 23, and his partners are themselves members of the target demographic.

Like Facebook’s founder Mark Zuckerberg, Greenberg began Sharethrough as a student project with school chums. After graduating from Stanford’s undergraduate economics program in 2007, he enrolled in the university’s engineering and management master’s course, and found himself as a teaching assistant for a class on “persuasive technology” where students were assigned to design Facebook applications. He decided to try the project himself, and found that with the right “viral tuning” software, he could attract over 20,000 users a month.

Teaming up with a fellow teaching assistant and a student, Greenberg, who dropped out of Stanford in early 2008, began placing cold calls to local media companies and investors, initially offering to design video advertisements that would be hits online and to distribute them through the applications Greenberg had designed.

Executives and investors were not buying the idea. Mike Maples, a Silicon Valley insider who backed both digg and Twitter, initially rejected Greenberg’s pitch. “These guys had to be made to understand that their business wasn’t about the applications, but rather that they are a product company.”

By mid-summer, a chastened Greenberg was back at Maples’ door with a new streamlined plan for a data-driven software company, a business model Maples approved. In August, Sharethrough announced the results of its first full round of funding: $1 million from Maples and Ron Conway (an early investor in Google), a sum the company says it handily made back in 2008 profits.

Skeptics point out that Sharethrough is not the first start-up to promise a shiny new method for advertising online. VideoEgg, founded in 2005, has a similar cost-per-engagement pricing model, a wider array of clients from Procter & Gamble to Hyundai Motors and a network of Web sites that includes some social networks as well as content sites like NewYorker.com. But its distribution model is closer to traditional display advertising: Visitors to these Web sites see a thumbnail of an advertisement on the side or above the main page; if they scroll over to view it, it will expand to a full page that (despite the company’s name) may not include video.

Another rival, YuMe, has a model that is similar to Sharethrough’s, but it has so far steered clear of social media sites, and therefore cannot optimize its software within a network to target specific demographics of users.

To some consumer advocates, this is a line companies shouldn’t cross. In 2007, Greenberg was criticized when he wrote a series of articles for the technology blog TechCrunch detailing the lengths to which advertisers would go to insert their brands into social media. Some digital commentators were incensed at the tactics he described, including paying bloggers for favorable product reviews and accessing, as Sharethrough does, personal profile data. Others were simply offended at the notion of bringing the shopping mall into their walled social gardens.

Greenberg is unapologetic. He says Internet users who are concerned about their privacy should opt out of applications altogether. But he bets most won’t. Young people aren’t as guarded with personal information as their parents. “My generation, my group of friends,” he says, “We just couldn’t care less.”

Greenberg insists that his sharing technology, which shifts the burden of “pushing” products onto users, will play a big part in the future of advertising. Internet “users won’t accept advertising in a traditional ad, but they will [accept it when it comes] through a friend.” Advertisers hope he is right.

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