Facebook to let users track friends, services

* Facebook lifts lid on location-based features

* Enhances link between website and real world

Palo Alto, Calif Aug 18 (Reuters) - Facebook's 500 million-plus users will soon be able to track friends' whereabouts, as the world's largest Internet social network adds technology to increasingly tie its virtual world to everyday life.

Facebook, which now groups more people than there are people in the United States, announced on Wednesday a new "Places" feature, touting it as a tool to help users share where they are, figure out who's in the vicinity, and check out happenings and services within the same locale.

The addition of so-called location services to Facebook -- a move that industry observers have speculated about for months -- opens new revenue opportunities for the company, but also presents it with delicate privacy challenges.

Users will be able to "check in" to look up friends' whereabouts, unless they block that function as part of what Facebook executives called a comprehensive set of privacy controls and other safeguards.

The new services could help Facebook grab a bigger piece of a local advertising market driven by small businesses like restaurants and stores. The vast size of that market -- estimated in the tens of billions of dollars a year in the United States alone -- has attracted online companies like Google (GOOG.O) and Yelp.

The feature could also let Facebook target users with ads based on their location, or offer special coupons when a user nears a certain business, supplementing the $700 million to $800 million that Facebook generated in revenue last year, according to people familiar with the matter. (Reporting by Alexei Oreskovic; Editing by Edwin Chan)