• by James Green , Op-Ed Contributor, June 12, 2013

Since June 2012, Facebook has made strides in opening up its environment to the digital advertising community at large with the introduction of the Facebook Exchange (FBX). Marketers can now use external sources of data for audience targeting – including site, search and even offline data, unlike before when marketers were limited to targeting Facebook users with only Facebook data.

The launch of FBX directly impacts real-time buying (RTB) in multiple ways. First, with Facebook being one of the largest publishers, it immediately increases the amount of RTB inventory. Second, advertisers are buying RTB media in a credible environment. And finally, because there is such a great deal of inventory, prices are cheap.

While all of these factors appear to be positive, they are raising some valuable questions in the industry:

Who Should Advertise on FBX?

Facebook’s Exchange represents an exciting opportunity for marketers to reach a large audience of consumers where they spend most of their time, but it is more beneficial for some advertisers versus others. Those who are already buying audiences across ad exchanges should consider taking advantage of FBX as an additional inventory channel. Advertisers should think of FBX as a reach extender. However, for brand advertisers looking for a more expansive forum in which to tell their brand story, FBX may not be the right place. Soo Jin Oh, VP of Ad Operations at Magnetic, also cautions that it is possible for marketers to cap out on reach if they are leveraging only first party data. Advertisers who come out on top on FBX are those who use first (site level) and third party data, including search data to grow audience segments.

How Does FBX Compare to Other Exchange Environments?

A study by eMarketer, released earlier this year, reported that Facebook and Google are on track to lead in digital display spending in 2013 with Facebook predicted to account for 15.5% of the total display market. The volume of inventory alone sets FBX apart from other ad exchanges. Additionally, Adam Berke, President of AdRoll, cites three core reasons for why marketers should leverage Facebook: it requires a login, which largely rules out non-human and bot traffic, it limits accidental clicks based on the ads shown on the right hand side or in the News Feed, and finally, Facebook users are those who typically have a free moment, making it the ideal time for advertisers to engage them.

Performance and pricing has also been a hot button topic for FBX. The results of a recent study by Magnetic indicated two key outcomes:

1. Conversion rates were typically higher than standard display, which was mostly driven by view-through conversions

2. ROI was higher on FBX, which was largely due to lower costs.

Other companies reported similarly positive results when comparing FBX to standard display. However, advertisers should proceed with caution because view-through conversions are not a viable source of true measurement. Using an attribution model beyond last view, or last click, will help level the playing field in terms of true performance for FBX and the other ad exchanges.

Additionally, FBX lacks the creative flexibility that is commonplace on other exchanges. Options are limited to a News Feed ad and standard ad unit on the right-hand side of a user’s Facebook page. Creative limitations could definitely limit bigger ad dollars for Facebook in the immediate future as Facebook continues to establish itself.

Ad exchanges are becoming an increasingly crowded market and FBX still has some growing up to do to remain a competitive outlet.