Since the historic Facebook IPO several weeks ago, topics ranging from stock undervaluation to pre-teen expansion have headlined just about every major news source around the world. Up until very recently, the major question has been: how will Facebook continue to monetize their massive audience? On June 13th, a very plausible answer was posited in the form of Facebook Exchange, Facebooks brand new real-time bidding platform.
Facebook Exchange, which will launch in a few weeks with eight partner DSPs, is an expansion on the current Facebook advertising platform. Previously, advertisers could target only users based on their Facebook activity, stated interests, or self-reported demographic information. If you like Britney Spears and live in Eastern Nebraska, you can be pretty confident that your ad sidebar will feature her upcoming tour stop in Omaha. While promising intangible branding benefits, and currently accounting for around one in four display impressions, these ads have largely been regarded as less than effective, with significant evidence pointing to unsuccessful outcomes.
With the advent of Facebook Exchange, advertisers will now be able to access this ad space through DSPs such as DataXu and AppNexus, who will be able to bid on this space in real time, much like they do with the major display networks like DoubleClick and RightMedia. This means that in addition to targeted ads, Facebook will now be able to host retargeted ads. Advertisers who work with these DSPs can cookie their site visitors, and through the DSPs networks, serve advertisements to bounced site visitors as they navigate downstream. For many Internet users, the downstream destinations are social networks; destinations whose doors have long been closed to the cookies that come with their visitors. As of now, these doors are officially open.
Every day, more and more people are turning to social networks to talk about the things they buy. People discover clothing, accessories, books and luxury items through Pinterest. Their friends share those new Tory Burch sandals they just bought on Twitter and Facebook. They figure out how to build their new Ikea table Uppleva Ormo using Quora. They watch their friends eat at Chipotle on FourSquare. Commerce is slowly forming synergies with social in very significant ways.
Despite the ambitious promises of social advertising, the evidence has pointed to its overall ineffectiveness. Conversions attributed to social activity have not followed the upward trends in spending on Facebook ads and promoted tweets, and while it is still cool that you can share that hot new pair of Jack Rogers sandals with your best friends, the proverbial proof is not yet in the pudding.
When it comes to retargeted ads on Facebook, the only guarantee that a retargeting company should make is that they will serve your ads to the right audience. Conversations with advertisers are too often distracted by questions such as on what sites are my ads going to show up? or how do I know Im getting above the fold? The answers to these questions seem relevant, but largely have little effect on performance, and guarantees are not always possible. Facebook Exchange creates the opportunity for a new guarantee: when your audience navigates away from your e-store with a shopping cart full of your products, well get you back in front of them on Facebook.
What exactly does this mean for the digital advertising world? For one, its reinforcement for companies such as ReTargeter. Facebook is legitimizing the retargeting space by signaling that behavioral targeting is as, if not more, relevant than demographic targeting. Their highly targeted demographic ads have not been successful, and now they’re looking into a form of advertising that they know can perform. They know what we know: retargeting gets results and it can drive serious ad revenue.
Prior to the announcement of the new exchange, Facebooks stock was down 28% from the IPO price. As of Monday June 18, it rose 9%, closing at $31.41, down only 17% from the IPO price. The importance of this exchange for Facebooks future cannot be overstated.
If the month since the Facebook IPO has anything to teach us, it is that all angles must be considered before jumping into a decision. There will be stories of success and of failure, as is the nature of the digital advertising game. The challenge will not be in finding who will pay the most for the space, but in finding the person who will benefit the most from the space.