Facebook has capitulated to privacy concerns, altered a controversial advertising system and apologised to its users for spoiling Christmas gift-giving plans by publicising their shopping habits without their permission.

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.

Users were especially angry that opportunities to opt out of the Beacon system were fleeting at best, taking the form of small boxes on participating retail sites that were easy to miss.

Last night Facebook admitted that Beacon “can be kind of confusing” and promised that its 55 million users will be given greater control over whether to participate and will have to give their explicit consent, or “opt in,” before any information is passed along.

“We’re sorry if we spoiled some of your holiday gift-giving plans,” a Facebook spokesman said. “We are really trying to provide you with new meaningful ways, like Beacon, to help you connect and share information with your friends.”

More than 40 different Web sites, including Fandango.com, Overstock.com and Blockbuster.com, had embedded Beacon in their pages to track purchases made by Facebook users.

The most serious consequence of Beacon, designed to tap into "the recommendation generation", had been to reveal details of Christmas gifts meant to be surprises.

"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."

But the row had threatened to distract Facebook as it strives to reap profits from its vast user base.

The three-year-old site 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 had previously claimed 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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