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Facebook Exchange: Looking Forward

Published: August 24, 2012

Author: Caroline Watts

future of FBXThe retargeting space turned its collective attention toward Facebook advertising when, in June, Facebook announced the launch of the Facebook Exchange, Facebook’s new real-time bidding platform. Though Facebook has been characteristically reticent about the new exchange, often dubbed FBX, some interesting details have emerged.
With what Facebook has (and hasn’t) said, it’s possible to predict what the exchange might look like in the future, why it’s important to advertisers, and why it’s important to Facebook.
Separation of interest and intent
At some point in the not-too-distant future, FBX will open up the walled garden to select DSPs and retargeters (14 at last count), allowing advertisers to use their own data to serve ads on Facebook’s coveted ad inventory. That means that advertisers can now use first-party data, such as previous site visits, to target or retarget ads on Facebook. As of now, advertisers purchasing retargeted ads within FBX will not have access to Facebook’s extensive demographic and interest data. First-party advertiser data and Facebook’s rich user data will remain siloed. For the foreseeable future, this is how the exchange will remain.
This means that Facebook is simply operating as any other publisher (albeit one with quite a bit of inventory and seriously high traffic). This separation between first-party and Facebook data has been one of the major points of confusion, and more than one publication has misreported that Facebook is allowing advertisers to mingle Facebook data with first-party behavioral data, leading to a mini-backlash regarding privacy concerns.
Where we’re headed
On the other hand, one of the primary disappointments expressed by advertisers is about that same data silo. Couple the performance of behavioral data with the richness of Facebook’s demographic and interest segments, and you could have some really powerful targeting. Since one of Facebook’s biggest challenges is its rather ineffectual ad targeting, why not provide advertisers with something so potent and so impossible to replicate?
Facebook has been treading carefully when it comes to all new advertising initiatives, not just FBX. COO Sheryl Sandberg has responded to analyst concerns that Facebook is moving too slowly, saying “[w]e intend to be continually cautious as we work on user perception.” In this instance, Sandberg was talking about ads in user news feed ads, which are merely an issue of annoyance—not nearly so thorny a concern as user privacy, the challenges of which Facebook is all too familiar. Facebook’s caution is merited – particularly when, as mentioned above, misconceptions about FBX data have already led to negative responses.
I do think it’s likely, however, that Facebook is biding its time before it can offer retargeting with layered Facebook data. If FBX is successful post-launch (which I believe it will be), and users become comfortable with, or indifferent to, its presence, then the data is likely to be merged. At that point, FBX will offer something truly unique with significant value for advertisers and stockholders alike.
Effective ads and a more open system
FBX is an extremely important prospect for Facebook; as many have noted, Facebook’s post-IPO performance has been lackluster. Facebook is looking for new, more effective products to offer their advertisers. Sponsored stories are an example, as are the recently announced news feed ads that can be targeted to non-fans. FBX is another step in this direction.
We’ve known for some time that retargeting ads out-perform traditional display. That Facebook wants to incorporate a demonstrably successful ad format is not all too surprising. What is noteworthy is how FBX is related to another Facebook trend: increasing third party access to a formerly closed system. FBX will allow outside providers (well, a small group of hand-picked outside providers) to serve ads on Facebook’s proprietary display network, and that’s a big deal. Similarly, Facebook has also announced that it will allow advertisers to include tracking tags from analytics provider Adometry and display rival DoubleClick. Though surprising, a general liberalization toward other ad providers could be a boon for Facebook; companies will be better able to integrate Facebook ads into their existing marketing strategies if Facebook can play nicely with other services.
A Facebook ad network?
Some in the industry have predicted that Facebook may begin building ad networks and selling inventory outside their properties. If this were true, and FBX were to grow to include outside inventory coupled with access to Facebook user data, Facebook could have something very powerful and highly profitable on its hands. As Josh Wepman, Director of GCA Savvian Advisors, told AdExchanger, a Facebook ad network like this “could be where Facebook ad tech gets interesting and has the potential to benefit all constituencies: advertisers (improved performance), publishers (increased yield), and Facebook (increased ad revenue).” If this prediction becomes a reality, Facebook could build a long-lasting revenue driver to rival even AdSense.
While Facebook is still playing its cards close to the vest, much can be deduced about the future. What comes next isn’t obvious, but there are some clear opportunities for Facebook that will hopefully become great opportunities for advertisers as well.
Caroline Watts, Retargeter

1 S Wacker Drive
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Chicago, IL 60606(650) 539-4124


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