Commentary

A World Of Walled Gardens: The Demise of Facebook Exchange

In 2010, the ad-tech industry jointly established the first open standards for real-time bidding. Coined OpenRTB, they were developed to drive greater flexibility and consistency for advertisers and publishers in the automated trading process. Quickly endorsed by the Interactive Advertising Bureau and the ecosystem as a whole, RTB now represents almost 40% of all digital advertising revenue. Projected to reach almost 50% by 2020 when it will account for $26 billion, RTB’s growth was fueled by the OpenRTB standards.

However, amid this success, Facebook has announced the sun-setting of Facebook Exchange (FBX). The move represents the final step in Facebook’s complete unplugging from the open marketplace of buyers (demand-side platforms), sellers (publishers and ad networks), and exchanges that developed around the OpenRTB standards.

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Facebook’s justification was that FBX only provides limited desktop inventory in a mobile-first world. But in reality, the company has been pulling back from the open marketplace for some time. Earlier this year, it scrapped plans to build a demand-side platform into Atlas, its ad server and measurement platform, stating that the open marketplace was rife with fraud and “valueless inventory.” A similar reason was given for shutting down LiveRail, a video supply-side platform, also belonging to the open marketplace. As such, FBX’s closure does not come as a huge surprise.

Yet, in spite of Facebook’s critiques, programmatically traded media on the open market is integral to most digital media plans. Fraud prevention, viewability standards and cross-device capabilities are also increasingly being adopted. So why do Facebook and other media giants choose to become “walled”?

Publishers have no incentive to allow their inventory to be evaluated independently alongside other openly traded media. Facebook’s business is not marketer-aligned; it makes revenue from selling its media and believes it is best to do so within a closed model. Transparency and independent measurement are all benefits for media buyers, but fail to attract major media sellers who have established market dominance with inventory supply and buyer demand.

After November 2016, Facebook inventory will only be available to advertisers using its proprietary suite of tools and APIs. When advertisers bring their customer data into Facebook, the dataflow will be a one-way street. So while advertisers can still take advantage of the great targeting and measurement opportunities within Facebook, they will lose transparency and data ownership. It will no longer be possible to tie marketing within Facebook to marketing outside it.

In April, Forrester Research released a report that weighs the pros and cons of walled gardens. Essentially, the short-term benefit is their “ability to leverage unique user identification for targeting and measurement." However, the strategic and operational downside of closed ecosystems is that they increase costs and prevent brands from reaching consumers across channels. They leave marketers with a dangerous blind spot, losing "ownership of key data pertaining to their customers over time and com[ing] to depend on walled gardens for customer intelligence.” Advertisers are unable to reconcile their own data across disparate ecosystems, nor to orchestrate integrated omnichannel customer experiences.

Closed ecosystems detrimentally blur the lines between players (media sellers) and referees (media performance and measurement technology companies). As a result, advertisers lose their ability to understand how their marketing is performing across all of these siloes.

Marketers will continue to operate in a fragmented world of both open and closed ecosystems, with varying degrees of transparency and data access. To get by, they need buy-side tools that allow them to keep their sell-side partners honest, and to understand the value of each media channel in relation to others.

How valuable is a Facebook newsfeed ad versus an ad on the open ecosystem? How to decide on search investments versus the 30-second TV ad? How can marketers determine that the investment mix in their plan is driven by normalized outcomes across all their channels, and prove with certainty how their media investments are delivering returns for their business? Neutral third-party measurement tools are needed to help level the playing field.

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