Facebook Looks To Real-Time Bidding For Ads
June 14, 2012

Facebook Looks To Real-Time Bidding For Ads

Peter Suciu for redOrbit.com

The social network giant Facebook announced on Thursday a plan to introduce real-time bidding for advertising on its site. This would incorporate technology used by Web-based companies including Google to effectively target ads to consumers.

The newly announced service, Facebook Exchange, will let advertisers target specific types of users on the social networking site based on past browsing. Prices for ads will be based on the cost per thousand viewers and spots will be sold through third-party technology partners.

This move comes as the Menlo Park, California-based tech giant looks to prove to its investors that the social network has a valid revenue stream, a fact that likely remains a concern since the company´s high-profile IPO on May 18. Since that time the stock price has tumbled by 28 percent amidst concerns that the ad revenue generated on the site isn´t keeping pace with its membership.

Currently Facebook has more than 900 million users worldwide, and has relied on advertising as its primary revenue. Last year the company brought in $3.15 billion from ad-based sales and has since introduced mobile ads along with other services to boost those sales.

“Facebook´s been having challenges coming up with effective advertising,” said Debra Aho Williamson, an analyst at New York-based EMarketer Inc. to Bloomberg this week. She added that Facebook “is hoping to use that inventory on the right side of the page to deliver advertising that is more targeted.”

Facebook needs to pump up revenue to justify its stock market value, which now hovers at about $58 billion, and the real-time bidding technology is already being seen as a make or break move. The technology, which is used by the likes of Google, Yahoo and AOL, targets ads to consumers based on their browsing history.

This works by noting past visits to an e-commerce site, and advertisers can in turn bid to show ads based on those visits. In other words, if a user´s looks at a bicycle on a site, an advertiser can bid to place an ad for that bicycle on Facebook. The ads appear on the right-hand side of the Facebook screen and this process takes just seconds.

This new bidding process is also designed to help advertisers deliver what is being called “time-sensitive” messages — so those bicycle ads would appear soon after the e-commerce site was visited. The idea here is that this would target the user when he/she is already looking at the specific product or service.

This also builds on existing ads that are based on interests that users list in their profiles as well as the pages they “like” on the site. Facebook will of course continue to offer those ads, but these will not be used as part of the real-time bidding exchange.

Another key to this is that Facebook doesn´t actually give the potential advertisers information about its users, but instead lets the advertisers target the users based on data that is generated during said user´s visits to other sites.

Where privacy issues come up is that this relies on cookie-based targeting, and the fact that Facebook has a vast wealth of information about its users. And to make the advertising system work, Facebook will place a cookie in the browser of its users.

Consumers will not actually have the option to opt out of the cookies on Facebook. However, they can utilize a blocking of the cookies through third-party ad brokers. This means that users have to go through an added step if they don´t want to be subjected to the real-time ads, so the issue that users are essentially tracked and then specifically targeted does remain.

However, analysts predict that this move could generate additional revenue for Facebook, which already leads the United States in the display-advertising market.

The effectiveness of the ads has been questioned. ComScore noted this week that ads on Facebook do encourage users to buy products in stores and online, but a Reuters/Ipsos poll suggested the opposite, and noted that just a minority of users were influenced by ads, with just one in five noting that they had bought a product because of an ad or comment on Facebook.

The social network thus appears to be good with all things social, but when it comes to ads and revenue the network is still seeing a disconnect.