AdRoll has been flagged as the fastest growing ad company in America and is also one of eight companies that Facebook tapped this summer to sell ads on the site based on users’ web surfing habits — before then, Facebook sold ads based only on user demographics and on social activities such as “Likes.”

In a phone interview, AdRoll CEO Aaron Bell said the company has run more than 1000 Facebook ad campaigns with more than 700 clients such as American Apparel, Skull Candy and custom suit maker, Indochino. Bell said AdRoll’s ability to “retarget” Facebook users means the ads it serves are far more likely than regular ads to lead the viewer to click on them or, eventually, to make a purchase.

That’s all very weel but does it help answer the $3.5 billion question? That number, if you’re wondering, is what Google earned in Q4 of 2012 — almost all of it through advertising — and is a figure Facebook investors hope the social network may one day replicate. Facebook, with its huge user base and deep pools of data, is poised to be an ad behemoth too but faces obstacles Google does not. The biggest of these is that, unlike people using a search engine, users on the social network want to chat with their friends and may be reluctant to break off the banter to go and buy something.

Retargeting firms like AdRoll claim that Facebook ads based on browsing history do indeed lead to purchases, either right away or else days or even weeks later.

The proof will be in the pudding next week when Facebook announces its results. In the meantime, notwithstanding AdRoll’s efforts, many of
Facebook’s ad attempts still seem baffling. Look at the screenshot at right, for instance, which is taken from my own most recent visit to the social network: shiny disco pants (never worn them), toner (I don’t own a printer) and something to do with films and a goat (no idea…). Investors better hope CEO Mark Zuckerberg has figured out the ad strategy here even if I can’t.

Last year, the firm found that 27 percent of U.S. adults over the age of 18 indicated that they will opt out of online behavioral advertising to manage privacy. This year, that figure has nearly doubled to 50 percent. Additionally, 76 percent said they don’t allow companies to share their personal information with a third party (up from 67 percent last year) and 90 percent said they use browser controls to protect their privacy, including deleting cookies (which is up from 84 percent last year). Fifty-eight percent of respondents said they “do not like” online behavioral advertising, which is an increase from 54 percent in 2011.

TRUSTe’s business is based on convincing companies that they need to think about privacy (the company audits privacy policies and provides other privacy-related services) and word choice and context can influence outcomes of consumer opinion surveys. And TRUSTe is relying on self-reporting so there’s a chance that people are reporting a tougher stance on privacy than their actions actually reflect. But TRUSTe’s findings are pretty consistent with recent independent research and data.

In May, Mozilla said adoption rates for Do Not Track privacy features on Firefox were 8.6 percent for the desktop users and 19 percent for mobile users, which was up from less than 5 percent for desktop users in September 2011.  A March survey from the Pew Internet & American Life Project found that 73 percent of respondents would “not be okay” with a search engine tracking searches because it was an invasion of privacy and 68 percent said they were “not okay” with targeted advertising because they didn’t like having their online behavior tracked and analyzed.

As big data grows and online tracking techniques become more sophisticated, TRUSTe’s results indicate that consumers are becoming increasingly aware that personal data is valuable currency.  Twitter’s recent decision to support Mozilla’s Do Not Track privacy controls and Microsoft’s announcement that it wanted to make Do Not Track a default could be making these issues more top of mind for consumers. Increased regulatory interest in online tracking, as well as ongoing news about tech companies’ privacy gaffes, are also likely contributing to consumer awareness.

Between news that Facebook is planning to release a new mobile ad targeting product and recent M&A activity in the space, mobile advertising is heating up. But, as TRUSTe’s report further shows, privacy continues to be a big concern for mobile users. For example, while 62 percent of smartphone users say they’re aware of mobile tracking for targeted ads, only one percent likes it. Less than 10 percent of smartphone users said they’re willing to share specific location information, web browsing behavior, their home address or contacts with mobile apps, the report said.

I spoke to him this week about the privacy problem and how to fix it. Here are some of his ideas:

The Companies Can’t be Trusted to Regulate Themselves

The tech and advertising industries have been aggressive in promoting their own version of do-not-track rules. According to Mayer, the system of self-regulation has so far been a “dismal failure” and that “leaving it to Silicon Valley to solve the problem won’t cut it.”

Mayer says that the culture of technology companies, especially their focus on growth, makes them ill-suited to safeguard consumer privacy. He is also skeptical about companies’ ability to collect data without identifying specific individuals: “The whole ‘it’s all anonymous’ line is just untrue.”

Yes, the Government is up to the job

A late Senator’s muttering that the internet is a “series of tubes” symbolizes for many the government’s inability to understand, let alone regulate, new forms of technology. Critics fear ham-handed government intrusion will kill off the next Google (NSDQ: GOOG) or Facebook. Mayer believes this caricature is overblown.

“It’s not as if Congress hasn’t regulated intensely technical areas before,” he said, in reference to agencies like the FAA and NASA (the nuclear industry would presumably count as well).

Mayer thinks that increased government oversight in the privacy sphere would be effective so long as the mandate was given to an independent agency and not Congress itself.

Ad Companies are Overstating the Importance of Behavioral Advertising

Behavioral advertising is based on the infamous tracking cookies that vacuum up users’ activities as they move around the internet. Advertisers say this information lets them serve relevant ads that in turn pay for all the web services that users now enjoy for free. Eliminating behavioral advertising might cause innovation to shrivel.

Mayer dismisses such claims as a scare tactic. He says a colleague’s research shows that the relative proportion of online ad revenue derived from behavioral advertising is insignificant. This means that interent companies would still flourish even if they relied only on traditional ad categories like contextual advertising (ie placing a corkscrew ad on a wine website).

Europe Doesn’t Get it Right Either

Privacy activists sometimes point to Europe’s tough personal data rules as a model for the United States. Mayer disagrees, saying many of the continent’s proposals are knee-jerk and focus excessively on cookies. He adds that some would be ineffective or impossible.

“Technologically, many of the ideas are kind of crazypants.”

We Can’t Say For Sure ‘What They Know’

The Wall Street Journal’s initial series about Mayer’s research was titled “What They Know.” But it turns out that even Mayer can’t say just how much information internet companies are keeping or who is doing the best job of protecting it.

“It’s very hard to compare the big players as there’s not a lot of transparency.”