What’s a Facebook Ad Exchange? A (Partial) Explainer.

So what is the Facebook Exchange?

Here’s the main thing: It’s not Facebook’s attempt to create an ad network that extends beyond Facebook.com itself and onto the rest of the Web.

Lots of people assume that Facebook will do that one day, in the same way that Google has been doing for years, and this could be a first step toward that. But that’s not what’s happening now.

In short, the exchange will be Facebook’s attempt to let advertisers buy some of its ad inventory in targeted, “real time” bidding. That happens throughout the Web on other sites already, most notably at Google’s own ad exchange, and at exchanges that have inventory from lots and lots of publishers.

So in theory, Facebook is tapping into a trend that lots of ad buyers are already embracing.

I’ll spare you most of the technical details, in part because I don’t have them and in part because the ones I have won’t be meaningful to you. (That said, the go-to sites for that kind of stuff are AdAge, AdExchanger and Digiday, but you probably already knew that).

For the rest of you: This is being pitched as a way for advertisers to buy Facebook ads that target you precisely, using data you’ve generated by visiting other Web sites. And for Facebook, it should be a way to improve the value of some of its inventory, because it will be able to find buyers who want to buy a specific ad, being shown to a particular user, at a certain time.

The other important thing here is that the only kinds of ads going into the exchange are Facebook’s “marketplace” ads — the tiny display ads you’re used to seeing, and usually ignoring, like the ones on the right side of the screen (pretty busy there, Dean!):

 

Publishers use exchanges to sell off the inventory they can’t sell with their own sales teams, and Facebook has what amounts to an infinite supply of Marketplace inventory. So bumping up the value of those ads by just a few pennies could be a significant revenue boost.

But these aren’t the ads that Facebook has been emphasizing to the big brand advertisers recently, at events likes its big marketing event earlier this year.

Facebook is trying to create a new kind of ad, that looks and acts just like content, which shows up in users’ primary newsfeed, and is supposed to be much more effective than a plain-vanilla display ad.

Facebook’s pitch to both advertisers and Wall Street is that brand-new ad units like the newsfeed ads are the real future of social marketing. But it’s way to early to tell if that’s working. In the meantime, they can try to squeeze a bit more out of the old-fashioned stuff.