From my Forbes.com blog The New Persuaders:
Facebook will debut an advertising exchange in the next few weeks that will help advertisers target audiences on the social network in the same way they’ve been able to do elsewhere on the Web. That may help Facebook boost its revenues to counter worries by investors, who have knocked its stock down nearly 30% from its initial public offering last month.
The exchange will allow a select group of ad tech companies called Demand-Side Platforms, or DSPs, which gather pools of target audiences that advertisers can reach instantly through automated buying systems, to get access to such audiences on Facebook, according to spokesperson Annie Ta. They haven’t been able to do that before because Facebook only allowed them to target ads using its own data on posts or brands that users Liked or shared, or on information about themselves that the revealed in their Facebook profiles.
Using what’s known as real-time bidding on the Facebook Exchange, a travel site, for instance, could target an ad on Facebook for a discounted air ticket to Hawaii to people who searched for a Hawaii flight but didn’t buy a ticket, or an ad for a Honolulu hotel room to someone who did buy a ticket.
The main advantage for advertisers is simply being able to reach people when they are on Facebook the same way they reach them when they are surfing the rest of the Web. That’s potentially huge, because Facebook boasts nearly a billion active monthly users, who spend hours a month on the site. No longer will those hours be lost to advertisers. What’s more, recent browsing data may be more of an indication of intent to purchase a product or service than stated interests or Likes–or at least advertisers may think so–so the ads may be more successful than some of the targeting currently available on Facebook.
For Facebook, the move is likely to raise the amount it can charge for its nearly limitless ad space, which is widely believed to command relatively low rates. It’s not clear how much this will boost its revenues, but if the resulting targeted ads prove more relevant to users, prices should rise as advertisers will be willing to bid more for the space.
As AllThingD’s Peter Kafka points out, this is not the ad network that Facebook has long been rumored to be considering. That would run Facebook ads on other websites, like Google does with its lucrative AdSense network. But Facebook has steadfastly said it has no near-term plans for an ad network.
Of course, the more relevant those ads are, the more they could raise more privacy concerns for Facebook: Too relevant, and people might get creeped out. They can opt out of this targeting, but not through Facebook–only through the DSPs, which can be difficult to do. However, these ads also will sport the little “X” that lets you get rid of an ad, and clicking on it will send you to information that directs you to the DSP’s website to opt out. Facebook itself won’t be building user profiles based on the exchange.