Why the Ad Tech Guys Are Going Nuts About Facebook Exchange, and Why That Matters

This summer, Facebook launched its own ad exchange. If you’re in the ad tech world, that’s a really big deal.

And the rest of you have probably never heard of it. That’s in part because Facebook itself hasn’t said much about it. It kept its partners under a tight gag order throughout the summer until last month, when it allowed them to hand out a few upbeat anecdotes. And none of that stuff will make sense to a regular human being.

So we asked Triggit CEO Zach Coelius to try to explain what Facebook is up to, using as much plain English as possible.

Coelius isn’t close to being a neutral observer, because he’s been an enthusiastic Facebook partner. But he’s a good explainer, and relatively candid.

One scenario to keep in mind as you read the interview: If Coelius is right, and the Exchange adds dramatic value to the cheap ads Facebook is using it for right now, what would happen if the company relented and offered the Exchange on all of its ads?

Two theories, which aren’t mutually exclusive:

• Facebook’s overall revenue shoots up, as the company conforms to the way most of the Web ad world does business.
• Facebook’s value flattens or drops, because Facebook will have conceded that it hasn’t been able to figure out a revolutionary new way to sell ads. Instead, it’s just like any other big Web publisher with lots of inventory. Like, say, Yahoo or AOL. That doesn’t mean it’s a bad business, but it’s a whole lot less exciting than a world-changing one.

Kafka: Let’s go over the basics of ad retargeting, and how Facebook’s exchange uses that technique.

Coelius: Retargeting lets advertisers utilize data they have about their customers. When I go to Backcountry.com and I look at a pair of skis, in the same way that Backcountry.com might send me an email saying, “Hey, you know these skis are on sale, you should buy them,” or the way that they would change their site to show me the skis that I looked at the last time, when I visit again — they can also do the same thing with their ads. So that, when they show you their ads, they can show ads about things that you’re interested in. So, on Facebook, they’re now enabling those advertisers to do that, too.

So you’re buying the ads from Facebook and reselling them to your advertisers?

Coelius: We work with the exchanges, and they use a technology called real-time bidding, which means that in real time, as the page is loading, the exchange will call to us and say, “Hey, Triggit, this user ID [which represents an anonymous Web surfer] is available, are you interested in showing them an ad?” And we say, “Oh, yeah, this guy wants to buy a pair of skis from Backcountry — we think he does, he looked at a pair of skis recently — let’s show him a Backcountry ad with a pair of skis in it.”

And how do the Facebook exchange ads perform against those you buy on other exchanges, like Google’s?

We kind of went into this in the beginning saying, “Facebook’s huge, and they’re opening up to data-driven advertising, and if it performs just as well as everything else we do, we’re going to be very happy.” And, for us, it has been an amazing and wonderful surprise — the performance has been so much better than anything else we’ve ever done.

Why?

There’s a number of reasons for that. The ad units actually are very good — they’re always “in view,” there’s no fraud …

These are the small “marketplace” ads you see on the right side of the page, right?

At this point. Those ads are small, but they’re actually good ads, relative to some of the other ads we’ve bought.

Really? Because some buyers I’ve talked to have complained that those small ads don’t give them enough room to do anything compelling.

The ad units are smaller than some of the others that we have, and if they were bigger they would work better. But they’re definitely not limited, and they’re not working poorly. They’re working incredibly well. I could only imagine what we could do if they gave us a bigger canvas to paint on.

Why else do you think the Facebook ads work?

On most of the other exchanges that we buy, the traffic patterns and the usage of those Web sites is often either search-driven traffic or browsing traffic. Traffic where the user is looking to do something, or looking to find something, or read about something. Facebook is a communication utility; it’s something that people always have open, and they’re there. And what we’re finding is that when they do engage with the ads, they’re converting at much higher rates. If they stop what they’re doing on Facebook and turn and click on an ad, and go to our customer’s Web sites — they buy.

Really? Because that’s the standard advertising critique of Facebook — that people aren’t there to buy anything. They’re there because they want to hang out with their friends, and they don’t want to see ads, and they don’t respond to them.

We never bought on Facebook before they opened up to real-time bidding, so we can’t speak to what went on before. But what we’ve always seen is that when you provide users with ads around the things that they’re interested in, they engage with those ads.

But, to beat this into the ground: The whole premise of your industry is that Web sites don’t matter, people do. That you can find interested customers for your clients all across the Web, and that the data about those people is more important than what site they’re on.

I don’t always say it’s one or the other. I would say the site, at least in this case, with Facebook, definitely matters. But being able to know what a user is interested in, and show them ads around that, definitely makes them better and more relevant.

So, how big can the exchange and retargeting get for Facebook?

Obviously Facebook is gigantic — 25 to 35 percent of the entire Web. So they’re big. The volume at this point is ramping incredibly quickly. We haven’t gotten to the full scale that is Facebook, but the dial is turning very quickly, and Q4 is coming up. And I would be very surprised if we don’t go to full scale in relatively short order.

Do you think they’ll end up allowing retargeting on all their ads?

I have no idea. They have grand plans, and they’re going to do grand things. I hope they open this up more broadly. There’s no reason why they can’t apply the data to sponsored stories or premium ads or mobile — we could apply it across the board.