Facebook has confirmed that it's launching a real-time ad exchange, which allows advertisers for the first time to target audiences on Facebook using their own first-party data and data from third parties.
Now advertisers will be able to pinpoint web users who've visited travel sites and scoured rates for a Puerto Vallarta vacation but didn't pull the trigger on buying a trip and then show them a Facebook ad to remind them of their previous intent. It's a way for intent to finally be layered onto Facebook ads and to potentially make it more appealing for direct-response advertisers in categories like travel, hospitality or education that shovel money to Google for paid search ads.
These aren't the social, brand-focused "sponsored stories" that appear in user news feeds, but the display "marketplace" ads that appear on the right rail, the closest thing to traditional ads on the social network.
Facebook Exchange will debut in the next few weeks, and eight Demand Side Platforms (DSPs) and retargeting firms will be cleared to buy the inventory: TellApart, Triggit, Turn, DataXu, MediaMath, AppNexus, The Trade Desk and AdRoll, according to spokeswoman Annie Ta.
A Demand Side Platform, or DSP, is an online advertising platform that makes it easier for an advertiser to buy and sell online display advertising on multiple ad exchanges. DSPs also allow advertisers and brands to buy audiences rather than specific website ad placements through technology called real-time bidding. The DSPs use behavioral targeting data, collected from cookies and data exchanges, to identify audience segments. The advertiser then uses that targeting data to define what kind of person they want to target with their advertising and how much they are willing to pay per impression. Then the DSP bids on the ad impressions using that advertiser’s criteria and budget, and serves the ads.
The third parties will sync the cookies they've dropped on users with a Facebook cookie to anonymously serve ads to users, but no Facebook targeting options can be layered on top of their buys. Advertisers will only be able to tap into the inventory through the eight third parties, said spokeswoman Annie Ta. News of Facebook's exchange was first reported by Bloomberg.
AdRoll President Adam Berke said the arrangement with Facebook will operate much the way that company's retargeting of first-party traffic on Google, Microsoft, or Yahoo's display networks currently works. He said, noting that retargeted ads tend to have higher click-through rates.
"We think it's going to add a lot of value to Facebook inventory the way it's added value for other display inventory sources."
But it's not just about retargeting someone who may have visited a brand's site and is now logged onto Facebook; it's also about reaching segments of people whose demographic profile is a match with the typical buyer of the brand's product or service.
Advertisers want to target people in those segments in real time wherever they are on the web. But they haven't been able to reach those people on Facebook up to now with a single cross-platform media buy, says Mike Baker, CEO of Dataxu. He said.
"Facebook's sort of been a walled garden up to now."
The launch of Facebook Exchange also represents a sea change in Facebook's attitude toward advertising, since the company has historically urged marketers to buy ads that point within Facebook for purchases. It's also significant since Facebook's IPO roadshow was all about touting the performance of socially-layered and premium ad products, with marketplace given relatively short shrift.
eMarketer principal analyst Debra Aho Williamson said.
"It's opening up ad inventory to performance-type advertisers like Amazon and Ebay who want to direct advertisers back to their websites to make a purchase. We bash the marketplace side, but clearly they think there are legs to it. This business we love to hate maybe is more important than we thought."
Dave Williams, CEO of the Facebook Ads API partner Blinq Media, thinks the move is an opportunity for Facebook to drive up the value of its effective CPMs, since it has the potential to make bidding on the platform more competitive and also to increase the perceived value of ads to the bidders on the back end. He said.
"As advertisers are able to get closer to that user intent and further down into the purchase funnel, it's going to drive up conversions and also the value of the inventory."
The matching of Facebook's user data with outside sources is sure to raise privacy issues. Facebook said users will be able to opt out of ads from specific third parties, though not out of seeing display ads bought with third-party data altogether.
Bryan Wiener, CEO of 360i said.
"Between the additional data and real-time bidding, this should make buying on Facebook more efficient and targeted. The challenge will be balancing increased targeted with potential privacy concerns."
COMMENTARY: The Facebook Ad Exchange is big news because it marks a major departure from Facebook's "walled garden" to begin accomodating the needs of advertisers and brands for more precise targeting of ads based on the online behavioral attributes of a brands target customers using its own captured demographic and behavioral data or that of third parties. This is big people.
Facebook Marketplace display ad clickthrough rate CPMs are hitting new highs, but they have historically been horrendous, and since the format of Facebook actual Marketplace ads (see below) that appear on the right margin of a Facebook page remain unchanged, it's yet to be determined if there will be a noticeable increase in clickthrough rates, and how this translates into actual revenue lift. Advertisers and their agencies appear to be very excited about Facebook Ad Exchange, so time will tell.
The Facebook Ad Exchange will offer real-time bidding based on keywords that provide the targeting, this should drive up CPMs depending on how many bidders there are, the time of day, and so forth. If you are commercial airline, and you are trying to fill passenger seats for tourists who might consider vacationing in Tahiti, you would bid for keywords like "travel", "air travel", "tahiti", "tahiti vacations" and so forth.
Before an advertiser's display ads ever get published on a website, they travel through a convoluted series of channels that typically starts with an advertising agency, media buying platforms, demand side platforms (DSPs), ad exchanges and ad networks before the ad is finally placed on a website that will target the customer. The Advertising Exchange Ecosystem (see chart below) reading from left-to-right provides a visual display of the different channels within the ecosystem and the various processes that the ad will pass through before it ever appears on a website.
Typically a media buying service is hired by the advertising agency to bid for a certain number of ad impressions at a certain cost-per-thousand through ad networks, ad exchanges (like Facebook Ad Exchange) and DSPs. The Facebook Ad Exchange will provide a certain amount of advertising inventory (ad impressions) based on a number of different parameters. The advertising agency or media buying services acting on the behalf of the advertisers and brands will place their bids for that inventory. Facebook Ad Exchange will then select the highest bidder meeting its asking price. If the asking CPM price is not bidded, then the inventory is put out for bid again until a bidder is found. Sometimes, the ad exchange may have to reduce CPMS if there are not enough bidders or the bidding is too low. The following flowchart provides a visual explanation of how the ad exchange network works.
Courtesy of an article dated June 13, 2012 appearing in AdAgeDIGITAL