Facebook announced on Wednesday that it would allow advertisers to bid on highly targeted ads. The surprising thing isn't that the social network is making a major change in its ad sales strategy, but that it isn’t already doing what rivals Google, Yahoo and AOL have done for years.
The new program, called Facebook Exchange, offers a real-time auction for ads aimed at users who, through their online behavior, have shown an interest in a particular product. If Facebook's cookies detect that you looked at a pair of running shoes on the Brooks Running website and did not make a purchase, an advertiser like Zappos might bid a tidy sum to show you an ad for those shoes the next time you log into Facebook.
“Facebook has been having challenges coming up with effective advertising,” Debra Aho Williamson, an analyst at New York-based EMarketer Inc., told Bloomberg. The company “is hoping to use that inventory on the right side of the page to deliver advertising that is more targeted.”
Unless you log out after each visit to the site, Facebook can follow your actions as you view other sites on the Internet. And with Facebook becoming the universal login for so many third-party sites, many users are choosing to remain logged into Facebook all the time. As a result, Facebook collects an ever-increasing trove of data on its users' online behavior. Facebook Exchange puts that data to lucrative use by allowing advertisers to send their message to potential customers when they are most primed to make a purchase.
Saving Grace or Shortcoming?
Facebook’s ability to track the online activities of its more than 900 million users and use that data to target advertising was a major justification for its $100 billion valuation following last month’s initial public offering. (Facebook’s value has since slumped to about $58 billion.)
But it’s unclear why Facebook hasn’t been allowing advertisers to bid on ads all along, or why the company was not taking full advantage of the data available to target ads. The most recent changes to the company's service terms made clear that such an ad platform was in the works, while also allowing Facebook to offer ads on other websites in much the same way Google targets ads through its AdSense program.
Further muddying the picture, Facebook said that Facebook Exchange ads would be sold by third-party brokers who would be responsible for tracking user behavior. Facebook is essentially setting up a layer of middlemen, which suggests the company is not ready to do the job itself.
Facebook’s Possible Edge
Nonetheless, Facebook brings important strengths to its new ad-auction program. In an email, Marc Poirier, co-founder and CMO of Acquisio, said Facebook gives credibility to advertisers who may be concerned about the quality and content of sites on which their ads may appear.
“Facebook would instantly be the most brand-safe [real-time bidding] environment there is,” Poirier said. "This would attract significant budgets from brands who are afraid of [real-time bidding] because of the inherent risks of ads being displayed on undesirable sites. Facebook will be a very attractive choice for direct-response advertisers such as search marketers, who may find in Facebook a natural extension to their current efforts.”