January 23, 2014, 12:11 PM

Facebook tests a mobile ad network

The move is the biggest step the social network has taken to powering ads off of its core site. This could creative a lucrative revenue stream for Facebook, one expert says.

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Facebook Inc. says it is testing a mobile ad network that uses the information consumers share on its platform to place ads on mobile apps.

“In this test we’ll be extending Facebook's rich targeting to improve the relevancy of the ads people see, provide even greater reach for Facebook advertisers, and help developers better monetize their apps,” writes Sriram Krishnan, who works on mobile products at Facebook, in a blog post this week

While Facebook has run similar tests over the last few years, this effort involves the social networkworking directly with a small number of advertisers and publishers, rather than an outside ad-serving platform, which makes it “more like a mobile ad network,” Krishnan wrote.

Developing an ad network that leverages information consumers share on Facebook to target shoppers off the social network is a logical next step for the social network, says Colin Sebastian, an analyst for investment firm Robert W. Baird & Co.

“Google is the largest online advertising platform partly due to the strength and relevance of AdSense,” he says. AdSense allows web site operators—including retailers but mostly information and entertainment sites—to earn fees for hosting ads that are targeted to the site’s content and audience. “Similarly, we view Facebook as positioned to leverage unique user profile data to allow advertisers to serve targeted ads across the web.”

For example, a Facebook user who Likes the Chicago Marathon on Facebook or posts about running might see a Facebook-provided ad displayed on a news site for a sports drink.

If Facebook develops an ad network, its offering will compete with Google’s and Twitter’s ad networks, Sebastian says. Twitter entered the ad network business last September when it bought MoPub, which sells a variety of services, including a mobile ad exchange that enables advertisers to bid in real time for ad space in mobile apps.

“This is an important step for Facebook, representing a concrete step towards powering ads off of the core site, and the beginning of what could be a meaningful new revenue opportunity,” Sebastian says.

Even without an ad network, retailers are boosting their spending on social media ads. Spending on social ads increased roughly 400% from 2012 to 2013, according to Internet Retailer’s new 2014 Social Media 500, which ranks the leaders in social commerce by the percentage of web site traffic they receive directly from social networks.

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