Facebook is poised to capitulate to privacy concerns and alter its controversial advertising system.

Last week the social networking website, which is under pressure to convert its vast user numbers into cash, angered its members when it emerged that Beacon, a newly unveiled advertising tool, publicised details of their shopping habits without their permission.

Businessweek.com reported that Facebook executives were discussing possible changes to the system yesterday.

A Facebook spokesman said: "Facebook is listening to feedback from its users and committed to evolving Beacon so users have even more control over the actions shared from participating sites with their friends on Facebook.”

The most serious consequence of Beacon, a new advertising system designed to tap into "the recommendation generation", so far has been to reveal details of Christmas gifts meant to be surprises. But Facebook members are angry that the tool has notified their online "friends" of purchases made on retail sites outside of the social network.

"Matt in New York already knows what his girlfriend got him for Christmas," said one post on Facebook.com.

"Why? Because a new Facebook feature automatically shares books, movies, or gifts you buy online with everyone you know on Facebook. Without your consent, it pops up in your News Feed - a huge invasion of privacy."

Facebook members using services such as Fandango.com claimed to have missed a box on the tickets website that gave them the chance to opt out of the Beacon system.

The row threatens to distract Facebook as it strives to reap profits from its vast user base.

The three-year-old site claims more than 55 million members and recently achieved an implied valuation of $15 billion (£7.3billion) after Microsoft recently took a minority stake. But it is expected to post a profit of only $30 million this year.

Under the Beacon system, retail partners pay Facebook for what the social network calls “trusted referrals”. When he announced Beacon, Mark Zuckerberg, the Facebook founder, called trusted referrals the “hold grail” of online advertising.

Meanwhile, eBay, a Beacon member, argued that communicating to consumers through "the people (they) already know...has the potential to be a powerful tool".

Analysts agree. The Future Foundation, a think tank, recently published a report that said social networks will be a force in online retail. It found that the "ultimate endorsement for a product now comes from the 'lips and clicks' of friends and contacts on sites such as Facebook and MySpace, as purchase is more likely to come from recommendation than any other form of marketing".

The report estimated that with £13.8 billion already expected to be spent online this Christmas, retailers who embrace the "recommendation generation" could make an additional £750 million.

However, just how social networks can turn a profit and spread commercial messages among groups of acquaintances without upsetting people remains unclear.

MoveOn.org, the heavyweight US left-wing campaign group, has suggested that Beacon threatens privacy across the web.

"Facebook and similar sites have the potential to really revolutionise how we speak to each other in our society," a spokesman for MoveOn said. "When people see their privacy violated, it sullies the entire thing."

A Facebook spokesman said that MoveOn was "misrepresenting how Facebook Beacon works".

He said: "Information is shared with a small selection of a user's trusted network of friends, not publicly on the web or with all Facebook users.

"Users also are given multiple ways to choose not to share information from a participating site, both on that site and on Facebook."

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