Run Don’t Walk. The Facebook Exchange

Not that I proclaim to be always on-top of the news, there is one news story whose significance definitely escaped me. Perhaps it is because the name sounded just as vague as many other announcements. Or maybe because it was not it unveiled at a big gathering. That, however, does not stop the launch of Facebook Exchange from being an unbelievably enormous and incredibly prudent move on behalf of Facebook to monetize its ad inventory. Monetizing 900 million users across the globe is no small task. From an ad guy’s perspective it is probably one of the most exciting challenges, but it would also come with one of the more difficult tasks, trying to increase yields on inventory which looks much more like run of network than it does premium, despite the richness of the data that surrounds the users.

When Facebook started to monetize its site, it chose to use a hybrid between a display ad and a search ad. It also chose to focus on building a self-service platform as opposed to a sales force focused on big, custom deals – no page wrapping, no dynamic ads, just utility. While the ads may be rather basic, Facebook has quite a few unique features that separate its ads from other platforms, some of them almost reminiscent of days of old when the web was a closed wall. Similar to the AOL days, companies can create pages within the Facebook ecosystem. They can also create and send traffic to events within Facebook and of course apps on the platform. More and more, the platform has ways to spend money to promote its own ecosystem, and they keep enhancing the products to tap into social proof or appeal to wanting to be heard. Smart.

Facebook has also made some incredibly smart moves outside of its ecosystem with Facebook Connect, which allows other sites to tap into aspects of the network Facebook built, such as logging in / creating an account with a third-party site without having to do anything other than using your Facebook credentials. Almost every site it seems has some aspect of Facebook on it, whether a simple like button to using Facebook’s platform for managing comments on pages. And, with some large amount most likely staying logged in even when off-Facebook, it means that Facebook has some powerful data at its disposal even when users aren’t on site. That is why I also assumed that Facebook’s big ad expansion would follow in Google’s footsteps. After becoming proficient at monetizing its own inventory, Google created a third-party network so that it could increase the number of impressions for the same ads, as there is a finite amount of impressions on their own domain.

In launching Facebook Exchange, they did not follow the Google handbook. Instead of focusing on their ads to monetize third-party inventory, Facebook is focusing on third-party data to monetize its own inventory. Essentially, the company is saying, we’ll get much more bang for our buck by increasing our own yields instead of trying to compete with every other ad network. Put another way, why compete with others when we can make them compete for us. Normally, trying to raise prices after the market has already set a price isn’t easy, but luckily for Facebook, a little clever thinking enabled just that. They looked at the display landscape and said in essence,

“What do we have?”

“We have an enormous amount of impressions from an enormous number of users.”

“Gee, shouldn’t anyone want to reach our users?”

“Yes. We even have lots of interesting information on them, some self-reported, others based on how they use the web.”

“What’s been the problem, then?”

“Perhaps it’s just confusing. Too many choices. Too specific.”

“How can we simplify it?”

“What if we stopped being the ones who gave targeting criteria?”

“What do you mean?”

“Well, what is it that seems to work on display? What are the biggest trends?”

“Exchanges are really big.”

“Keep going.”

“Exchanges, though, are all about audience buying. We have that now.”

“But, what are some the big buzzwords we keep hearing associated with it?”

“Real-time bidding. Re-targeting. DSP. SSP. Lots of acronyms in general.”

“You’re right there. What is re-targeting really?”

“You can target a visitor who came to your site on a different site with an ad for your site.”

“And why does it work now?”

“The exchanges have enough inventory to make it viable for a large number of sites not just big ones. It’s been around since 2004, but no one network had enough scale.”

“What about us?”

“Well, wouldn’t we have the same issue as any other single inventory source trying to do this on their own?”

“Would we?”

“You’re right! We wouldn’t. Other ad networks couldn’t do this because they might have a large aggregate reach but no frequency. Our users go on and off the site all the time. I see. We enable others to retarget their users on our inventory. Call ourselves an exchange. Targeting problem solved. Monetization improves dramatically.”

“Exactly. We don’t need to change the way they think. We need to tap into how they buy and want to buy.”

“Facebook Connect.”

“Facebook Connect.”

And, in case you are wondering. It works. So, as the title says. Don’t walk. Run. Find one of the DSP partners and get going.