Not that I proclaim to be always on-top of the news, but there is one news story that definitely escaped me. Perhaps it is because the name belies its significance, or more likely because I'm heads down trying marketing LeadsCon. (You are coming right?) Whatever the reason, I now can't stop thinking about it.
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 or intent driven, despite the richness of the data that surrounds the users.
When Facebook began the monetization process, 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. Over time, it has wisely enhanced the product mix available for advertisers, including several unique formats/placements that separate its ads from other platforms. In a way, quite a few will remind fellow old-timers of when the web consisted of gated communities. An open web won, but what's old is new, and the platform makes sure to help its advertisers spend money to grow not just their business but the Facebook ecosystem.
Facebook has also made some insanely smart moves to extend its ecosystem to the open web, i.e. Facebook Connect. Today, 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 or relying on it for credentialing. And, with some large amount most likely staying logged in even when off-Facebook, it means that Facebook has some of the most ridiculous data at its disposal regardless of where users go. That is why I also assumed that Facebook’s big ad expansion would follow in Google’s footsteps, that is creating a third-party ad network based off its on-site advertisers and platform.
In launching Facebook Exchange, they did not follow the Google handbook. Instead of focusing on leveraging 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 the buck by increasing our own yields instead of trying to compete with every other ad network. Said another way, why compete with others when they can make them compete. 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.
Here's how I picture it going down.
"Sucks being public. I liked just being able to do what we want when we want."
"I hear you."
"I know people don't expect that much of us, but how are we going to surprise them?"
“Let's think this through. I have an idea, but let's see if you get to the same conclusion. First, let's start with what we have. Name one thing?"
“We have an enormous amount of impressions from an enormous number of users.”
“So, people are pre-disposed to working with us. What else?”
“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 many products. Maybe they just don't want to work so hard to learn a new system.”
“Let's go with that. Make it easier for people to spend more. Tap into existing spend and enable those budgets to increase.”
“What do you mean?”
“I think it means focusing on display. We aren't search inventory. So, what is it that seems to work on display? What are the biggest trends?”
“Exchanges, real-time bidding, those are really big. That seems to be what changed things for Google”
“Great idea. Keep going.”
“Well.... Exchanges, though, are all about audience buying. We aren't going to enable our data to be used outside yet. The lawyers have said stay away.”
"True, but that doesn't mean real-time bidding and exchanges aren't an option. What is it that every advertiser who uses an exchange does first?"
“Bingo. And, 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 to leverage it. It’s been around since 2004, pre-exchanges, but no one network had enough traffic to make it viable for anyone but the largest of sites.”
“What about us?”
“Well, wouldn’t we have the same issue as any other single inventory source trying to do this on their own?”
“It's easy to assume so, but would we?”
“You’re right! We wouldn’t. Other ad networks couldn’t do this because they might have a large aggregate reach but not the frequency. Our users go on and off the site all the time. I'm seeing it. We enable others to retarget their users on our inventory. We become our own 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.”
It is genius, and I cannot wait to see the lift it has on their monetization.