Facebook to Advertisers: Never Fear, Exchange Is Here!

In a well-timed response to the criticism they’ve received about their paltry advertising network, Facebook recently announced their plans to launch real-time ad bidding inside the next few weeks. Google and other companies already use this technology to better target ads to consumers.

The new advertising program is called Facebook Exchange.

The only eligible slots available on the Facebook Exchange will be the Marketplace ads that appear on the right side of the page. These ads include a headline, text, and a small image, and they can link to a Facebook page, event, or outside URL. Sponsored stories and premium ads are not eligible at this time.

Think fast

The announcement couldn’t come soon enough. Since going public in May, Facebook’s stock has fallen over 25% — and that’s on top of a seemingly ever-rising tide of advertiser dissatisfaction over the impact of Facebook’s existing ad network, the most talked-about of which was perhaps General Motors’ very public withdrawal of its $10 million Facebook ad budget last month.

Facebook has tried to mitigate the negative press by releasing a two-part study on social media ROI with comScore that uses three major brand profiles to make a strong case that Facebook advertising works just fine, thank you very much. You can download parts one and two to read it for yourself.

Well, how does it work?

The way Facebook advertising works now is based on what information the user provides. Everything you tell Facebook about yourself — your interests, your activities, your schools, your political and religious beliefs, your relationship status, even what you “like” — is used as targeting material for advertisers. Critics say that this system doesn’t offer nearly the breadth and depth of a display ad network like Google, and they point to declining click-through rates as proof that Facebook isn’t doing nearly enough for marketers.

Check out this infographic from Wordstream for more on the differences between Facebook and Google ad displays.

Tracking you, tracking me

With the advent of Facebook Exchange, the range of information advertisers use to target you gets a whole lot wider. Facebook has already begun placing cookies — little nuggets of data — in the browsers of their members that can track where you go outside of Facebook. Remember that drizzly Monday morning you spent wishfully searching for cheap flights to Bermuda? Well, you may have nearly forgotten about that, but Facebook and its new technology partners didn’t. Don’t be surprised the next time you log into Facebook and notice that your sidebar is full of ads from airlines or travel sites hawking deals in tropical paradise.

The idea is that, by serving Facebook users ads based on their browsing history, advertisers can deliver more finely targeted and time-sensitive messages — resulting in better conversions and higher sales.

There will be no way to opt out of the tracking from inside Facebook’s settings, but you can circumvent it by blocking cookies in your browser.

So, is Facebook fixed now?

Yes! No! Maybe?

Many view Facebook Exchange as a step in the right direction, but is it a big enough step? Probably not. Facebook still has a long way to go to compete directly with other display ad networks — their too-tiny ad formats likely being chief among the complaints.

Advertisers unsurprisingly say that Facebook puts too much emphasis on its users, and not enough on advertisers — which, in their view, make up the very foundation of Facebook. Users, of course, would argue that it’s all about them — the site was begun as a social network, after all, not an advertising forum.

As social media giants continue to develops ways to monetize themselves, it will be interesting to watch the battle play out.