Mar 1, 2013

Facebook's real-time advertising push: a double-edged sword!

Facebook Exchange, the social network's real-time advertising platform, seems to have got good traction with the advertisers.

It has already signed-up 1,300+ customers over the last 5 months and is estimated to contribute nearly 7% of the company's projected 2013 revenue ($6.68 billion).

Impressively, some of these advertisers are already spending tens of thousands of dollars a day on real-time bidding. The spending is set to increase to around hundred thousands dollars a day in the near future!

Encouraged by these promising signs, Facebook is planning to roll out the tool across Asia & Latin America in the near future.

What Facebook Exchange Does

Real-time bidding, in a nutshell!

What this means is that the advertisers bid to automatically place their ads in milliseconds (as a Facebook user's page is refreshed) based on the user's browsing habits.

For example, I will be shown travel-related ads if I visit travel sites before logging-in or while logged-in to my Facebook account.

This real-time advertising increases the conversion chance, i.e, the user is more likely to click on such ads as opposed to the traditional display ads.

Business Imperative

It is a common knowledge that Facebook is under tremendous pressure to show numbers that justify its stratospheric IPO valuation.

Traditionally, Facebook derives a majority of its revenues by displaying ads using information gleaned from user profiles.

Unfortunately, Facebook's huge user base (1.1 billion, per its claim) makes it difficult to keep on signing new users.

In fact, there have been many studies that show that Facebook's user growth is decelerating.

Therefore, it is natural that Facebook will look at ways & means to generate more revenues from its existing users.

Technological Challenge

Facebook Exchange's biggest bug-bear could be a user backlash on privacy concerns.

The system uses cookies (on users' machines) to track and share anonymous data about where a person has spent time online.

This, hypothetically, allows Facebook to not only track its users in a real-time basis but also to profile them is much greater detail.

It is natural that privacy advocates  are concerned!

The company claims to address their concerns by the following safeguards:

  • It keeps the identities of its users anonymous and 
  • It does not share the users' data with ad buyers

Unfortunately, history is against Facebook in these matters!

Business Challenge

Google is the gorilla in the room!

Since its DoubleClick acquisition 4 years ago, Google has come to dominate the online ad-exchange market with a share of at least 50 percent!

However, I believe the bigger challenge for Facebook is the increasing user dis-engagement.

More & more users report of having had too much of Facebook and deciding to reduce the time spent on the site.

In fact, Tumblr seems to have emerged as the social network of choice for the new generation of American teenagers!

These factors can very quickly reduce the interest of advertisers in Facebook Exchange.


Facebook is in a classic situation of "damned if you do, damned if you don't".

It has to try to keep users, advertisers and investors happy at the same time!

This will never be easy, but it has no choice...

This post is based on Bloomberg article, "Facebook Ads Based on Browsing Challenge Google"