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.