Facebook (NASDAQ:FB) recently launched "Nearby Friends," an opt-in service that allows users to share their precise real-time locations on a map. This doesn't mean that everyone on your list can track your movements -- you only become visible to friends who turn on the feature as well. Yet in an age where people regularly overshare selfies, pictures of food, and passive-aggressive insults across social networks, Facebook's real-time location tracking service raises some serious concerns.

Let's take a look at three key questions about "Nearby Friends" -- why Facebook wants its users track each other in real time, how the company could benefit, and what risks are involved.

"Nearby Friends". Source: Facebook.

Why does Facebook want to track users in real time?
To understand why Facebook wants users to share their locations in real time, we need to look at several industry peers -- Google (NASDAQ:GOOG), Foursquare, Yelp (NYSE:YELP), and broadcast dating services Tinder and Hinge.

People use Google to look up directions and ratings of local businesses. These ratings are provided via a combination of user reviews and Zagat ratings. Foursquare allows users to check in and rate places as well. Yelp, which offers similar services, has been marginalized by both competitors. More importantly, Yelp's reputation has been tarnished by persistent accusations of fake reviews.

That's where Facebook comes in. Last May, Facebook started allowing its users to rate places that they checked into. That one little tweak turned the business model used by Google, Foursquare, and Yelp upside down. No longer were people relying on reviews from strangers, they were relying on the recommendations of their Facebook friends. In one fell swoop, Facebook solved the problem of fake and inaccurate reviews.

Meanwhile, location-based mobile dating services such as Tinder and Hinge have risen in popularity. Members on these services can broadcast their profile and location in the hopes of meeting compatible people nearby. Matches are made based on social media profiles. Of the two services, Tinder is more controversial, since it allows complete strangers to meet up. Hinge, on the other hand, only matches its users with mutual Facebook friends.

How Hinge works. Source: Google Play.

Hinge is notably an improvement over Tinder, but there's still no guarantee that all the friends of your Facebook friends are well-adjusted people. Therefore, Facebook's "Nearby Friends" feature upgrades Hinge's exclusivity and restricts real-time meetings to carefully selected people on a user's friends list. In other words, it's going after Tinder and Hinge in the same way that it challenged Google, Yelp, and Foursquare -- by replacing strangers with trusted friends.

How could Facebook benefit?
However, Facebook's goal isn't to put Tinder and Hinge out of business. What Facebook really wants is your location-based data.

Just as all your check-ins and ratings were being collected for advertisers, your location history will be used for targeted ads. According to TechCrunch, Facebook recently stated that "Nearby Friends" will indeed be used for marketing and advertising in the future.

For example, if you travel from San Francisco to New York, Facebook can instantly display relevant News Feed ads for New York. It could also advertise special deals for shops that frequently appear in your location history. Combining that data with a user's Facebook profile information could produce very specific ads that appeal to specific people -- a strategy which would be highly appealing to advertisers. The idea is similar to the location-based features found on Google's Google Now personal assistant, which was launched in 2012.

Facebook's advertising revenue, which accounts for 90% of its top line, surged 76% year-over-year to $2.36 billion during its fourth quarter. 53% of that was generated from mobile ads alone -- up from 23% in the prior year quarter. Considering that total smartphone users in the U.S. are expected to jump 29% from 160 million in 2014 to 207 million in 2017, tracking users' everyday movements could turn Facebook into a gold mine of targeted marketing.

What are the risks?
The downside of this technology is that social media has a proven track record of causing people to overshare information without considering the consequences. People have gotten sacked for insulting their bosses or arrested for boasting about crimes on social media.

There have also been accounts of Twitter (NYSE:TWTR) and Facebook users' homes being burglarized by followers or "friends" after they revealed that they were away on vacation. An entire site, Please Rob Me, was even launched to raise awareness of the dangers of oversharing their physical locations across social media networks. Meanwhile, controversial apps like Girls Around Me (which was discontinued after a scathing article at Cult of Mac) allowed anonymous users to track strangers in their vicinity via Facebook and Foursquare check-ins.

As I mentioned earlier, Facebook intends to avoid these problems by only allowing friends to connect with each other. While that might be enough security for a person who only confirms real-life acquaintances as friends, users who've added thousands of strangers to receive daily boosts for FarmVille could be putting themselves at risk.

The bottom line
In conclusion, Facebook's strategy is a bold one that requires an open mind about the future of social media. It also makes its social network much more attractive to potential advertisers who are targeting specific location, gender, and age-based demographics.

"Nearby Friends" might become a useful tool for meeting up with Facebook friends who just happen to be in the area. However, it could also be misused for creepier purposes. What do you think, dear readers -- is "Nearby Friends" a step in the right direction, or a step too far?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.