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The social network launched Facebook Exchange to combat investor scepticism of its ability to monetise on its users through advertising.

Early results suggest that the hailed value of user data has been sidetracked by a well-known advertiser darling: retargeting.

The drop of the Facebook stock price since the much covered and critiqued IPO in May has been a strong indication that investors have not been confident that Facebook can solve the challenge of monetisation on its many users.

In May this year, just before the Facebook IPO, General Motors even took the headlines with the decision to discontinue its Facebook advertising scheme worth about $10 million. The return on investment from the Facebook ads were simply not high enough the car manufacturer stated.

Facebook had to act. The world’s largest social network responded with Facebook Exchange – a new approach to increase the efficiency of its ads. In reality however there is arguably little new about it. 

Turning the advertising strategy upside-down 

As previously described on the Econsultancy blog, Facebook Exchange is a way for advertisers to place ads onto Facebook. The Exchange connects Facebook to an increasing network of Demand-Side Platforms that handles real-time bidding for advertisers looking to advertise on the social network through a fairly complex eco system of advertising technology. 

Now what’s actually new about the Facebook Exchange is the kind of ads that the social network is now able to put on its site. To a large extend, Facebook Exchange relies on retargeting technology to delivers its innovation. As someone claimed it is hardly innovation but nevertheless well worth noticing as it was here.

Retargeting allows advertisers to track a user’s visits to online retail sites using cookies and thereafter to provide targeted ads when the user is subsequently browsing the web (and now also when surfing Facebook). 

The key aim is to get the users to click back to online retail sites – creating a new opportunity for the online retailer to convert a high-potential prospect into a paying customer. And so far the word on the street is that Facebook Exchange is indeed proving to do be able to do just that

Results reported by affiliated DSP’s show as much as a 16 x return on investment and 2,2 times higher post-click conversions rates.  It is however hardly news to neither online retailers nor consumers or DSPs that retargeting campaigns yield high return on investment. 

The fact that Facebook tries to pass it off as a Facebook-specific attribute is evidence that its proprietary user data hailed to have endless potential in reality remains to be proven. 

Revisiting the value of retargeting

What is the comparable strength of retargeted ads is that it takes advantage of a clear purchase interest in a product. It remains the only display advertising discipline that can compete with search advertising in terms of conversion rates and efficiency.

And quite frankly it is not very surprising. Search ads are effective because of their ability to appear in context with a specific user's interest at a given point in time. Display retargeting is effective because it picks a conversation back up, gently reminding the user of her previous interest (yes, "gently reminding" does imply that you are sensible with frequency capping etc.).

The age-old yet elusive concept of “right message, right time” is the very essence of retargeting. And that’s why it is so efficient.

Facebook’s move to allow advertisers to use its own data for retargeted ads will increase Facebook advertising revenue and advertiser value. Without use of any of Facebook’s proprietary user data.

Some market participants expect retargeted ads to be three times more profitable for Facebook than its previous ads. Presumably because they are at least three times as valuable to advertisers.

What to make of it

It remains my strong conviction that online retailers who do not look for ways to get started on effective retargeting in one way, shape or form will increasingly be at a disadvantage against their competitors. Luckily a new bread of do-it-yourself retargeting platforms are becoming more widely available, reducing the requirements to get started with best-of-bread retargeting techniques.

The introduction of Facebook Exchange is definitely going to be a huge new inventory for these retailers’ retargeted ads. And for Facebook it may turn out to be a move that it should have made long ago.

Peter Schlegel

Published 8 October, 2012 by Peter Schlegel

Peter Schlegel is CEO & founder at Admaze.ly and a contributor to Econsultancy.

5 more posts from this author

Comments (6)

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Paul Benjou

While retargeting has become an effective but often abused tool, it will hardly matter as Do Not Track becomes (mandated or self-regulated)standard procedure.
The problem with the Facebook hyper-enthusiasts is the short sighted need for a quick marketing pop rather than a long term vision for a sustainable and protected business strategy.

almost 4 years ago

Peter Schlegel

Peter Schlegel, CEO & Founder at Admaze.ly

I don't believe that Do Not Track will become default any time soon. However, the cookie legislative and the default implementation of this will certainly set the boundaries for how, when and how much consumers will be retargeted - on Facebook and everywhere else.

Online advertising will not go away. And targeted advertising certainly will become more dominant in that respect. Most forms of targeted advertising relies on tracking in one way or another. I have a very hard time imagining a series of cause-and-effect events that would lead to a prosperous internet without more intelligent advertising.

almost 4 years ago

Andy Headington

Andy Headington, CEO at Adido LimitedSmall Business

Peter, I agree with you that it's hard for the Internet to get a to point where tracking will disappear - there are far too many companies reliant on advertising/user data for it to become a place where people aren't tracked.

However, isn't IE10 going to come DNT out of the box? http://www.newsfactor.com/story.xhtml?story_id=021001N2JSXR

almost 4 years ago

Peter Schlegel

Peter Schlegel, CEO & Founder at Admaze.ly

Yes, IE10 seems to come with DNT as default. And it will be very interesting to see how it will effect user behavior. And its impact on advertising. It is worthwhile noticing that IE has lost its dominant position and is now only the third-most used browser (roughly 16% accoring to http://www.w3schools.com/browsers/browsers_stats.asp).

Further - if we as consumers rely on the internet to have lots of free content, we implicitly accept advertising. As the saying goes: if you're not paying for the product, you probably are the product. So I agree that we will continue to have advertising. And quite frankly I believe it's essentially a good thing.

almost 4 years ago

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Hafez Adel

Andy--you're right that IE 10 will have DNT enabled by default, many companies (including Yahoo) have decided to ignore it's DNT signal because it's opting users out of third-party cookies by default. The disagreement stems from the fact that Microsoft will be setting a default state for the user, which in this case is "do not track". Microsoft's critics argue that this does not uphold the original spirit of DNT, which is to enhance consumer choice.

Ultimately, the best way forward will come through education--what cookies do, what they do and do not collect, and what safeguards are in place to protect personally identifiable information. Only then can consumers make an informed choice about how they prefer to browse the web.

over 3 years ago

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Mark

Retargeting - as long as it's managed as a post-click, same session attribution, can add some value. But, when this retargeting pixel data is handed out to several display ad platforms it just breeds a chaotic scramble for last-click attribution, loose (non existent) frequency capping, and an inefficient media spend.

The fact FB have an endless pit of inventory means they are going to win any retargeting attribution battle, and therefore the big slice of the ad spend.

over 3 years ago

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