You can be forgiven for not understanding how Facebook's new real-time bidding ad exchange works. Web advertising is complicated, and social media advertising is even more complicated.
Most of the business press has noted that the exchange is about improving the effectiveness of ads on Facebook.
Few, however, have noticed how it protects Facebook's vast trove of marketing data, making it more valuable for Facebook and concealing it from advertisers who might otherwise have access to it, according to Operative CEO Mike Leo. (Operative sells digital ad campaign management software to digital publishers and media companies.)
The exchange works by allowing advertisers to target people with "cookies" — tiny bits of software that sit on your device and monitor your web browsing — when they visit non-Facebook websites. When those people eventually arrive on Facebook, the cookies activate ads promoting the other web site's brands.
Partners in the exchange include so-called "demand-side platforms" like Triggit, TellApart, Turn, DataXu, MediaMath, AppNexus, TheTradeDesk and AdRoll. Those companies place and buy web advertising for clients.
In the new Facebook exchange, they'll be able to use whatever data they can glean from their own exchanges and cookies, and have that data follow users into Facebook, serving more relevant ads to them when they get there, Leo says.
But Leo notes that while the exchange may make some advertisers' campaigns more effective by marrying their own data with Facebook's user-base, none of the buyers in it will be buying ads based on Facebook's data.
"What Facebook is doing is incredibly smart," Leo says. "[Advertisers] are not using any Facebook data [in the new exchange]. They have to use their own data. Facebook is not letting anyone else get their hands on their own data."
If advertisers do want to base campaigns on Facebook's internal data, they'll have to go through Facebook's human sales force, Leo says, or its ads API, which has a different pricing structure.
The new exchange could potentially rival Google's in scale, Leo says. Previously, there was only one massive online ad player with the ability to serve "direct response" ads based on clues to a users' purchase intent (or potential desire to buy something online)—Google. The search giant's cookies track users as they shop around the web, serving them ads to remind them to come back to advertisers' sites. Notably, Google's Invite Media network is NOT a player in Facebook's exchange.
Now Facebook has created an exchange with 900 million users in it, and it tracks the same stuff as Google's various networks. At the same time, it shields Facebook's data from being mined by its own ad clients, Leo says: "This allows them to get into the direct response game and prevents their data from getting out."
It also allows Facebook to test-drive various DSP's inside its network—which is a lot easier than building a new one from scratch, should Facebook want to own the entire process by making another one of its famously sudden acquisitions.
Related:
