Facebook advertising 2.0: Fewer ads, more sophisticated data-based targeting
Since inception, Facebook has been launching new advertising so often that it may be rather difficult to keep up with the pace. But one thing is clear - the lucrative click-based advertising model will be bolstered by a data network that dives deeper into user data than it has done before. For marketers, Facebook will be a Pandora’s box for eerily accurate targeting and performance-based metrics both online and offline.
Facebook began with simple banner ads and gradually revolutionized the social advertising business, with inspiration from Google’s AdWords network, by targeting a blanket demographic of Facebook users. If you’re a lover of music between the ages of 18 and 24 who graduated at least from high school, Pepsi may have targeted you based on these criteria.
The click-through-rates (CTR) on what were essentially banner ads featured on the side a Facebook user’s profile haven’t been arguably strong, especially when compared to Google. But it does beat out on the average CTR for Internet display ads. Wordstream’s study indicates that the desktop version of Facebook’s ads stand at just 0.051 percent. The typical CTR for display ads in the U.S. is approximately 0.01 percent, or just one click per 1000 impressions. Google’s CTR on the other hand is nearly 0.4 percent.
Advertising has been just one facet of Facebook’s strategy but makes up the majority of its revenue stream. In the first quarter of 2012, advertising accounted for up to 82 percent of Facebook’s entire revenue. So it shouldn’t come as a surprise that behind the scenes Facebook is regularly rolling out tools that will increase the engagement rate and offer marketers in-depth tools to learn more about prospective customers.
Some of the new advertising products launched this year alone are enough to spin a marketer’s head. Log-out ads, which began selling in February, displayed ads when a user logged out of Facebook. Premium Ads replaced Classic Premium Ads as an offering for increased engagement in June. Sponsored Stories began selling on its mobile platform for all advertisers including small businesses just days later. In July, Facebook ads were integrated into Zynga’s website, raising suspicions about a Google-like ad network being implemented in July but so far other sites have yet to receive the same treatment. Then in August, Facebook began offering sponsored ads that would appear next to search terms in Facebook’s search bar.
In light of these new features that sit on the front end of Facebook’s ad products, Facebook is integrating a commanding backend powered by a data driven ad network. It can more accurately determine exactly which Facebook users to target and even notify advertisers about how well its ads are converting users to make purchases in the real world.
Among the most publicized ad product integrated to suit the needs of marketers, is Custom Audiences, which enables marketers to target ads based on email addresses, UIUDs and even phone numbers. Simply by uploading a CSV or TXT file, Facebook would be able to crawl its database of users and target these specific individuals. Now you can see why other online marketing efforts like email marketing and SMS marketing are imperative for targeting and engaging an existing customer base through Facebook.
Then there’s Facebook Exchange, which targets Facebook users based on their previous browsing habits. A third-party marketing provider issues (in conjunction with Facebook) a unique ID number. When a user has browsed a website with a certain product, like sodas for example, and that user returns to Facebook, Facebook then notifies the marketing service provider who then displays an ad for sodas for that invidual.
The most recent advertising product launched by the company has been a real-world performance measurement service in conjunction with its partnership with Datalogix. Facebook is now able to effectively measure and track, using information like email addresses or other information taken from a retailer’s loyalty programs, groups of users that are or aren’t making offline purchases at retail locations. It will also result in displaying ads at a "sweet spot" of effective frequency - between too often to the point of annoyance for users and not enough for advertisers.
Finally, Facebook Gifts, which is an e-commerce gifting service that sells physical goods provided by partnered retailers, launched just days ago. Facebook Gifts itself will be a crucial data collection tool for Facebook that should double as a product sentiment tool to provide marketers information on the types of gifts or products users are most prone to purchasing.
With over 900 million users and counting, crucial information like where people like to spend their time is transparent to the extent that Facebook can determine where they’re making purchases and with what advertisers. If you look at it, the data collected in the aforementioned Facebook ad programs is itself a profitable revenue stream for Facebook. So what does this mean for advertisers?
The trend shows that all of an advertiser’s online and offline marketing efforts will be just as crucial as their Facebook marketing strategy. All that data will one day coexist on Facebook to fuel the targeting of ads to users in a way that’s unparalleled to any other ad network – even Google.
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