June 15, 2012, 10:38 AM

Facebook will offer real-time ad bidding

Marketers can retarget consumers based on their off-Facebook browsing.

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In its latest attempt to bolster its advertising revenue, Facebook Inc. plans to roll out real-time bidding for ad space on the social network.

The social network is working with a number of ad networks for the system, which is called Facebook Exchange. Those ad networks will be able to place cookies on consumers’ computers to track shoppers’ browsing after they visit Facebook which—for the first time—will enable them to target consumers with ads on Facebook based on their off-Facebook browsing.

For instance, a shopper who visited an apparel retailer but did not make a purchase might be retargeted with an ad presenting her with a coupon for that retailer. “This means that advertisers can deliver more relevant advertising in a timely manner at a scale not possible before,” says a Facebook spokeswoman.

However, the only ad format that marketers will be able to bid on is Facebook’s marketplace ads, which are display ads on the right-hand side of Facebook.com. Those ads do not appear on mobile devices. And Facebook Exchange will only be offered in the United States—at least at first, say sources briefed on Facebook’s plans. 

Because Facebook’s marketplace ads are notoriously imprecise, this will offer a way to make them more engaging, says Rebecca Lieb, digital advertising analyst at research and advisory firm Altimeter Group. “The ads should be more contextually relevant because users will be ‘cookied’ so they won’t be limited to the data that Facebook has; they’ll also be based on users’ Internet browsing behavior,” she says. “If they’re more engaging it likely means that Facebook will be able to command better revenue for them.”

Facebook brought in roughly $3.15 billion in advertising revenue in 2011. Even so, the social network has faced intense scrutiny over the value of its various ad formats. For instance, General Motors last month, just ahead of Facebook’s initial public offering, said it would pull its ads from Facebook because of poor results.

Yet, Facebook Exchange is not what Facebook is banking its future on—it is merely a way to make its most basic ad format more effective, says Lieb. “This is not the fruition of what they’re trying to do in terms of social advertising,” she says. “This certainly isn’t social advertising.”

Facebook has said that its vision of social advertising is tying earned media, which is essentially the posts and other actions by brand and consumers on the social network, with Facebook’s ad units that don’t necessarily appear like ads. For instance, a Sponsored Stories ad can be the actual post by a consumer’s friend that includes a note about a brand. The brand can then pay to expand the distribution of the post, which appears in a consumer’s news feed (the first page he sees when logging on to the social network) with a note that the post is sponsored.

Brands comingling paid and earned media is what Facebook is focused on,” says Lieb.

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