The Search Agency’s Point of View: Facebook Exchange

Posted on Friday, June 15th, 2012 by Print This Post Print This Post

Categories - Display, Featured, Social Media

Overview

Facebook recently announced the company is testing and will soon be rolling out Facebook Exchange, a real-time bidding ad system where visitors to third party websites are tracked via cookie, enabling the serving of targeted ads to users on Facebook.

What is the change?

The introduction of Facebook Exchange (or FBX) marks a new ad revenue stream to Facebook’s advertising program. Advertisers will now be able to leverage data more representative of purchase intent for targeting consumers on Facebook. Previously, the Facebook Ads system relied on the ‘hand-raising’ attributes or actions taken by consumers, such as “likes”.

Why is the change being made?

For investors looking for justification of a $104B valuation at the time of Facebook’s IPO, the news of Facebook Exchange should help ease some of the worry. Facebook Exchange provides the opportunity for a new, large advertising revenue stream by giving advertisers with specific targeting requirements the ability to reach these consumers with relevant messaging on Facebook.

How will it work?

Facebook will serve ads based on the CPM price paid through partner demand side platforms, or DSPs. The ads will be in the format of the traditional Facebook Ads with image and headline/call-to-action text native to Facebook. The ads will not impact Sponsored Stories or mobile at this time.

Facebook is currently testing the system with 8 demand side platforms (DSPs) – TellApart, Triggit, Turn, DataXu, MediaMath, AppNexus, TheTradeDesk, and AdRoll.

Per TechCruch’s discussion with a Facebook representative, here is how Facebook Exchange will work:

  1. A user visits a travel site that’s hired a DSP rigged up with Facebook Exchange.
  2. A cookie is dropped on that user’s computer, typically when they’ve shown purchase intent.
  3. If the user fails to make a purchase, or the advertiser wants to market to them more, the DSP contacts Facebook and gives them the user they wish to target’s anonymous User ID.
  4. The advertiser pre-loads creative for ads that would target that user.
  5. When the user visits Facebook it recognizes the cookie dropped by the DSP.
  6. The DSP is notified and allowed to make a real-time bid to show the user ads.
  7. The DSPs with the highest bids get their highly-targeted ads shown to the user.
  8. If the user disapproves of being shown the ad and ‘X’s it out, they’re shown a link to the DSP where they can opt out of future Facebook Exchange ads.

With regards to privacy, Facebook users will have the ability to opt out of ads from the DSP, but not from within the social network. Facebook cannot control how DSPs drop cookies and therefore users wanting to be opted out will have to do so on each of the DSPs, a common practice for all internet sites.

What benefits does it provide advertisers?

  • Advertisers will be able to increase the effectiveness of their efforts on Facebook through more precise targeting.
  • Advertisers will be able to leverage real-time bidding to effectively reach targeted consumers on Facebook – facilitating greater direct response effectiveness for advertisers on Facebook.
  • Facebook has traditionally been more of a brand or awareness play. Now, direct response advertisers will have better tools to leverage the premium inventory to achieve their ROI goals.

What challenges does the change present to advertisers?

  • Diversifying spend through another platform other than Facebook. Spend and targeting must be managed through a DSP.
  • No official date has been discussed on the broader, wider roll out to all advertisers.

What action does The Search Agency recommend?

The Search Agency recommends testing ad buys using the advanced targeting techniques available through a DSP. If you have any questions, please reach out in the comments, find us on Facebook, or shoot us a tweet @thesearchagency

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3 Responses to “The Search Agency’s Point of View: Facebook Exchange”

  1. Frank lee says:

    Good overview, Keith. I have a question- Do you think cookie based targeting will be better signals then hand raising attributes in generating better roi for direct response advertisers? Effectively we are saying user submitted signals are not actually what users respond to… Instead BT/ cookie based signals are where the magic happens. Thoughts?

  2. Keith Wilson says:

    Good question Frank. There are exceptions to every rule, but generally speaking, direct response advertisers have struggled to find precise targeting on Facebook, and have better success with cookie based targeting because the targeting is more exact. Targeting by interest on Facebook is fairly generic and a function of a user’s Likes. Cookie based targeting can exact shopping behavior for products, such as a Toyota Camry. So for an automobile advertiser driving traffic to book a test drive online, cookie based targeting allows targeting of shopper for Toyota Camry cars in the last 60 days. On Facebook, advertisers can generally target the Toyota brand, but not the true behavior of a car shopper. In fact, an advertiser would likely be targeting Toyota loyalists, and not necessarily reaching in-market shoppers. It is a similar story for advertisers in B2B, niche, or deep in the conversion funnel

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