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Facebook about to launch Facebook Exchange, real-time ad bidding

June 13, 2012|By Jessica Guynn
  • Sheryl Sandberg, Facebook's chief operating officer, speaks at a Facebook event for advertisers in New York in February.
Sheryl Sandberg, Facebook's chief operating officer, speaks at… (Mark Lennihan / Associated…)

SAN FRANCISCO -- Facebook will soon let advertisers participate in real-time bidding to show ads on its website, a potential moneymaker for the world’s most popular online hangout.

 A service called Facebook Exchange will enable advertisers to reach users based on their browsing history elsewhere on the Web. The advertisers can bid on ads. 

The ads will be sold by third-party ad brokers that use cookies to track users on the Web. The new exchange was first reported by Bloomberg.

It's the latest effort from Facebook to pump up revenue to levels that justify its stock market value of about $58 billion.

Real-time bidding technology is already used by Google, Yahoo, AOL and other companies to target ads to consumers as they surf the Web. But this is the first time that Facebook is enabling advertisers to target its users this way.

How it works: Say you checked out a pair of running shoes on an e-commerce site. An advertiser can bid to show you an ad for those running shoes when you’re on Facebook. Or say you researched a trip to Hawaii.  an advertiser can show you an ad on Facebook about specific flights or hotels. The ads are display ads and will run on the right-hand side of the screen. The whole process takes only seconds.

Facebook isn’t giving any advertisers information about users, it’s just letting advertisers target users based on the data they generated while cruising around the Web. But this kind of cookie-based targeting may make some users uneasy because Facebook already has such a wealth of information about them.

Facebook will place cookies on the browsers of its users. Consumers can opt out of cookies through third-party ad brokers.

Analysts say the move could generate additional advertising revenue for Facebook, which already leads the U.S. display-advertising market. Prices will be based on the cost per thousand viewers.

“The more that Facebook can open up to different types of advertisers with different types of goals and make it easier for them to deliver targeted advertising, the better for Facebook,” EMarketer analyst Debra Williamson said.

Ads sold this way are still a relatively small percentage of the overall U.S. online advertising market, but demand is increasing, and may grow even more now that Facebook is taking part, Williamson said.

“It will certainly open up Facebook inventory to companies that want to reach people in this manner,” she said.

Facebook shares have slid nearly 30% since the company's initial public stock offering last month as investors worry that advertising revenue won’t keep up with its user base. The Menlo Park, Calif., company -- which has more than 900 million users worldwide -- generated nearly $3.2 billion in advertising revenue last year. It recently rolled out mobile ads, and this week it began a public relations blitz to convince investors and marketers that advertising on the site works.

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