Could the Facebook Ad Exchange be a real game changer?

Could the Facebook Ad Exchange be a real game changer?

It will be of no surprise to those deeply entrenched in all things social media, that Facebook has filed a patent that suggests it is building an ad exchange that harnesses its own social data to serve ads and, interestingly, content

(paid-for news articles or videos, otherwise known as native advertising) on sites beyond the social network’s own platform.

The patent application, which was published last Thursday, details an ad exchange that combines an advertiser’s data with Facebook’s own social graph to find users that match a given profile, say, a man in his 40s, who has recently bought a pair of trainers, and who reads articles about running.

The exchange would then allow the advertiser or content creator to place their content within the exchange. That content could be a normal ad or (and this is the interesting bit) a video, a Facebook wall post, news article, photo, gaming apps, and so on. (People are more likely to engage with native ads than overt banners). So buyers trying to serve regular ads might find themselves bidding against a company trying to serve a video and a company trying to offer an app download.

This new Facebook exchange would then go on to serve that content to users who match the profile when they visit a participating publisher’s website (“publishers” meaning anything from newspaper sites, video sites, retailers, email service providers, or other social networks). If one or more advertiser wants to target the same type of user, the patent says they would enter a real-time bidding war, with the highest bidder eventually getting their content served to their desired audience.

It is a fact that Facebook files patents all the time, many of which never see the light of day. But this one is very different. This latest patent application is a continuation of an application filed in July 2014, and that was a continuation of a patent filed in June 2011. Four years is a long time for a company like Facebook, and some of the data matching and targeting technologies the patent details sounds a lot like the Custom Audiences product it already offers and that many of our clients are already using to great success.

If this type of new exchange comes to bear, that could be massive for the ad-tech industry, and the wider digital landscape. Facebook’s data is considered second-to-none (although I’m sure CACI and Experian might say otherwise). It knows who you are, where you’ve been, and what you like because you’ve told it — it’s not guessing who you are based on your browsing behaviour (our old friend the cookie). The patent suggests this kind of targeting could easily work across both desktop and mobile. And, by serving both adverts and native content, it has the power to run as a hybrid advertising/native advertising exchange to service many needs for both the advertisers buying the ads and content, and for publishers looking to monetise their sites and apps.

However, we have to be careful about what we wish for, and as amazing as such a platform sounds, it could have the potential to damage an entire industry.

Content recommendation platforms like Outbrain, Taboola and ContentClick, which place paid-for content recommendations from publishers and brands on sites across the web. These are huge businesses (Taboola is valued just under $1 billion), but none have the kind of verified data Facebook has access to. They have some, but the majority of their targeting is based on inferences that you are indeed a 30-year-old female who likes running because of your past browsing behaviour.

It’s worth pointing out that Facebook does already have two ad exchanges, FBX and its LiveRail platform (The former, it is rumoured, to be shut down). But FBX only allows advertisers to buy ads that appear on Facebook. And while LiveRail goes off-Facebook platform, it is currently limited to placing ads on videos and within mobile apps.

It is not clear whether the potential new ad exchange would be an extension of LiveRail or a different product altogether. Whatever way, the patent describes a social-driven ad exchange that could operate across any platform or format, serving both ads and content, and that’s a powerful proposition indeed.

Facebook has been steadily building up its ad-tech arsenal of late. Expanding the LiveRail supply-side platform (SSP), re-launching the Atlas measurement platform and ad serveropening up the Facebook Audience Network (which allows advertisers to extend their Facebook ad campaigns to other apps using its targeting data) to all businesses, and it is rumoured to be working on a DSP (demand-side platform) to let advertisers bid on highly targeted advertising inventory.

The idea is for Facebook to build up a walled garden, just as Google has done, to cover every part of the advertising ecosystem, from supply side to sell side, measurement to targeting, and more. By providing scale, they are trying to create a one-stop shop for marketers’ advertising needs. Those marketers might dip into other providers every now and then for specific requirements, but Facebook and Google are trying to ensure the majority of the digital ad buys across the web go through their respective systems.

Where Facebook has a clear advantage over Google is its data. The patent says the type of data that could be fed into the exchange (which would be a mix of its own and data from advertisers or third-party data providers) includes profile information, browsing history, purchase history, content item viewing history, and crucially, data from its social graph (that’s the bit Google doesn’t have.) Personally identifiable data, such as email addresses, would be encrypted, the patent says.

It’s also that social networking ID that will help Facebook target and track users across devices — in this case it appears to be by firing tracking pixels when a user accesses a content item, which includes an encrypted Facebook ID.

So, if, as the industry expects, Facebook proceed with launching this new offering to the wider market (potentially this summer) , the internet really could become a two horse race between Google and Facebook. Whether this is healthy for the digital advertising industry, will remain to be see.

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