Facebook Exchange: A Long Term Distraction for FB Stock
There has been much discussion in the nerdosphere about Facebook’s move last week to debut their ad exchange: a form of retargeting visitors to an advertiser’s web page when they are back in the friendly confines of Facebook.com. Layer on top of this a real-time bidding (RTB) engine, and you have advertisers rejoicing that Facebook is finally listening to market demands.
But here’s the rub: Facebook isn’t designed to be an advertising network. It’s designed to be a content consumption experience.
Advertisers have an inherent demand for commoditizing advertising across the Internet, because it naturally builds in scale for buys. This is great for building up ad revenue from the vast majority of ad dollars dedicated to maintaining the status quo.
The sad part is that consumers often have a non-scientifically correlated “stay the f*** away from me” demand from interruptive advertising. The average click through rate on a Facebook right rail ad is 0.05%.
Compare that to the view-through rate of posts on Facebook: damn near 100%. With in-stream Sponsored Stories, Facebook was aligning itself with its core user experience: connecting people with stories that make them feel good, inspired or educated.
The Challenge
This marks the most challenging part about building a monetization system: where do you draw a line between incorporating commoditized ad units vs a native platform which aligns with your user intent?
On one side: advertisers want what is familiar (commoditized ad units). It’s easy because you (the agency/advertiser) maintain your processes. From a product perspective, this is known as low hanging fruit. It’s easy money, so you take it and compare yourself to other ad buys.
On the other side: 99.9% of engagement with your site (assuming a 0.1% page ad CTR) is not generating revenue. While FB Exchange is priced on CPM, the clicks are really where the money lies. 99.9% is a really big number of untouched revenue.
It makes sense why Facebook is making this change. It’s been getting beat down by investors, claiming that the Mighty Zucks aren’t responsive to big name advertisers like GM.
This move will slow down the negative momentum, so I get it. The other part it slows down, though, is the drive to create great content and distribute it wisely across the Facebook ecosystem.
In the long run, this FB exchange will likely prove more a distraction than a key, disruptive revenue driver.
