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Can Facebook Really Triple Its Ad Revenue by Embracing Retargeting?

Posted by Tom Hespos on September 28th, 2012 at 6:32 am

Um, no.  It can’t.

In a tragic example of what happens when one looks at ad models from 50,000 feet without zooming in for a closer look, Business Insider’s Nicholas Carlson postulated that Facebook could sell most of its ad inventory via retargeting and increase ad rates by “a couple multiples.”

Here’s how he gets there.

Ad inventory on Facebook sells for around 3X the rate when it’s sold as retargeting inventory.  Therefore, if Facebook stopped selling ad inventory “the old way” – targeted by profile data – and started selling retargeted inventory, the ad revenue will start gushing from the faucets and Carlson will get to gloat about Facebook’s having chased the wrong business for years.

If only it were that simple.

There are two huge problems with this.

One is that it assumes advertisers are willing to scale their retargeting campaigns up to meet the new supply Facebook would bring to the market.  They’re not.

Retargeting is a tactical option for most digital media plans.  The site retargeting that Carlson describes in his article represents a tactical subset of a larger retargeting strategy, which is itself a subset of behavioral targeting.  While it’s true that many advertisers would buy more site retargeting inventory if they could, many more wouldn’t.  That’s because advertisers are trying to develop retargeting strategies that don’t offend – that is, they want to avoid the situation that arises when someone takes a peek at a brand website and then is followed everywhere else on the web with ads for the brand.  If left unchecked (by leaving frequency-capping open-ended, for instance), the consumer walks away feeling annoyed and creeped out.

Which brings us to problem number two.  Did Carlson stop to think about what such a move would do to Facebook?  I mean, imagine what would happen if most of the ads you saw from Facebook were ads from sites you had recently visited?  Did anyone think about what this would mean from a consumer experience standpoint?  Even Facebook could sell a majority of its ad inventory to retargeters, wouldn’t a series of ads that was creepily similar to your browsing history make you want to flee from Facebook?

To be fair, I’m not certain what happened when Carlson talked to Zach Coelius from Triggit, a source he relies on heavily throughout his piece.  First, Carlson acknowledges that Coelius might have a dog in this hunt:

“Coelius has a stake in seeing FBX do well, and having business news outlets write stories about how Triggit is getting great ROI for its clients. So you have to take his claims with a grain of salt.”

But then he goes on to claim this:

“So, when Coelius says that 18 months from now, most of Facebook's ad inventory will be sold through re-targeting, and that rates will have gone up by a couple multiples, we find him to be credible enough.”

No offense intended toward Mr. Coelius.  He’s a smart guy, and I like both him and his penchant for red t-shirts.  That said, he represents the algorithmic buying sector of the industry only.  If Carlson wanted to check up on whether retargeting inventory can maintain a 3X price differential or whether advertisers are clamoring for retargeting inventory, he might have asked – you know – some media buyers.

If he had done that, he might have found that retargeting inventory is priced quite low in comparison to other types of inventory, and that buyers aren’t exactly salivating over the notion of Facebook bringing scads more retargeting inventory to market.  Since retargeting is a tactic that can be executed almost web-wide by using a handful of ad networks or ad exchanges, Facebook’s charging into the market would merely add to a massive supply, depressing prices further.

So let’s not make a leap of logic thinking that in the next 18 months, Facebook is going to increase its ad revenue by “a couple multiples.”  Advertiser demand won’t hold up, and the consumers won’t tolerate such creepiness from Facebook.

2 Responses to “Can Facebook Really Triple Its Ad Revenue by Embracing Retargeting?”

  1. John Mracek says:

    Tom,

    You are right on about this. I feel we are still in the early stages of programmatic buying and all people really know how to do is retargeting so that's where all the focus is--too much focus because its the low-hanging fruit. Time for the industry to grow-up and augment retargeting with other techniques for buys up the funnel as well.

    John

  2. Grant Hosford says:

    Great post - like many of the most effective digital campaign options, re-targeting is hard to scale and more complicated to manage than most understand. Will re-targeting be a boon to FB? I think so. Will it triple the value of their inventory? No.

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