Summary:

Facebook’s ad strategy is rapidly becoming more sophisticated. Marketers and investors are likely to love the results — but will Facebook be able to get it right without alienating users?

Mark Zuckerberg
photo: Background: Shutterstock/Thomas Pajot & Zuckerberg: Jason McELweenie/Flickr

Facebook’s approach to advertising can feel incoherent, especially when it flings random marketing messages all over a user’s page. In recent months, however, the social network has introduced tools that make its ad operation more sophisticated — and are likely to net it much more money.

News of the latest tune-up came on Tuesday as Facebook announced it will let marketers buy “sponsored stories” in a user’s News Feed on the basis of websites that the user has previously visited. Until now, Facebook only let brands buy stories based on a user’s profile — which is created from information the user told Facebook (age, location, “Likes” and so on).

The opportunity to use so-called “retargeting” is likely to be a hit with advertisers who regard ads based on a person’s browsing history to be especially effective and who consider Facebook’s news feed to be prime real estate. One industry executive told AdExchanger that News Feed response rates are 10 to 50 times higher than ads on the right side of the page.

Facebook also said it will be selling the News Feed through its FBX exchange, which is like an automated real-time auction house where advertisers bid to appear on your Facebook page. Until now, the tool was only available for Facebook’s right-hand ads.

Building an ad juggernaut

Opening up the News Feed for retargeting is likely to yield a nice cash boost for Facebook but, in the bigger picture, the move is part of a larger story of the company’s efforts to use different forms of data to build an all-knowing ad juggernaut.

Facebook is also, for instance, combining its own data with offline marketing information to help companies hone in on customers. As the New York Times reported, the clothing company JackThreads matched its database of two million customer emails against Facebook’s own email records — and found that two-thirds of them were on the social network. For Facebook, such opportunities are just the tip of the iceberg; the company is also working to tap into offline data on a large scale by partnering with loyalty card programs that collect drugstores and supermarket information.

All of this means that Facebook’s advertisers will be able to draw on three powerful sources of data (browsing history, offline data and Facebook records) in order to blast ads into one of the prime locations on the web — users’ News Feeds. For Facebook investors, this prospect is especially enticing given that this model can transfer nicely to mobile devices where users are spending more and more of their time. Facebook isn’t allowing marketers to buy mobile ads on its exchange just yet, but it’s a safe bet this will happen soon.

In short, Facebook appears well on its way to create a marketers’ paradise and a torrent of ad revenues. But there are still two factors that could scuttle these plans. The first is the familiar spectre of increased privacy regulation – but that is a threat Facebook and others like Google  have so far swatted away successfully. Instead, the larger peril may be the prospect of too much advertising undermining Facebook’s user experience and its vaunted design. As this all-ads screenshot from today shows, Facebook still has a ways to go in cleaning up an ad experience that too often remains irrelevant and ugly:

Facebook screenshot

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