Facebook Ad Exchange (FBX): Step By Step Analysis

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Facebook Inc (NASDAQ:FB) reported improved results, regards to its Mobile Ad campaign, which now represents at least 14% of the social networking giant’s revenues. The social media company has been pushing for increased return from its massive traffic (over 1 billion MAUs, and nearly 600 million DAUs), and has introduced various monetization mechanisms, including  Facebook Gift Service, Facebook Ad Exchange (FBX), and Promoted Posts, among others.

However, according to Nomura Equity Research analysts Brian Nowak, CFA, CPA, and Michael Costantini, Facebook Ad exchange is a promising venture for the social networking company, which remains in the spotlight for the greater part of media coverage and analyst reports. The analysts have literally dissected the whole process, while analyzing the associated benefits, both to advertisers and Facebook Inc (NASDAQ:FB)’s traffic monetization.

The analysts said that FBX brings online retargeting (which has historically been known to improve online advertising ROI and conversion) to Facebook Inc (NASDAQ:FB), as an enterprising way of defining what it is.


Facebook Ad Exchange (FBX): Step By Step Analysis

FBX allows advertisers to use their own real time consumer insight and web traffic data to reach Facebook Inc (NASDAQ:FB) users. The figure above is a descriptive artwork of all the components of the Facebook Ad Exchange. The social media giant will work hand in hand with demand side platforms, together with FBX partners, as well as Ad networks and publishing yield optimization specialists, among others.

Process Explained

Perhaps you might be wondering how the re-targeting works; well, here is how it is done. First, your Facebook Inc (NASDAQ:FB) profile is critical, all the information you provide, as well as the information of people you are connected to, is the backbone of Ad re-targeting.


Every time you visit an advertisers site, and type a search query, the advertiser’s site drops a cookie, which then is sent to the FBX demand-side platform partner for re-targeting. If the user has a Facebook account, the cookie is then used for re-targeting, and monetization is done on a cost per click basis, which is the method used to buy Ad units.

Ad retargeting has historically been proven to yield higher returns, and this is exhibited in FBX’s early signs, as ROI (Return on income is already estimated at 2-2.5 times increase, while Click-through rates have increased up to 4 times.


Facebook Ad Exchange (FBX): Step By Step Analysis

Nomura analysts have taken the growth rate in the Ad exchange business and mapped FBX against it. If Facebook Inc (NASDAQ:FB)’s ad exchange (FBX) follows the same trend, the social networking company should be growing its business in the segment by 16% next year, while in 2014, it should experience at least a 20% growth rate in its new venture.

The analysts earmark that, as of now, Facebook Inc (NASDAQ:FB) commands approximately 20% of the total online impressions. Going by its statistics of at least 1 person in every 7 people in the world holding a Facebook account, the social network giant should be tramping competitors in the business of targeted ads within the next few years.

The analysts even pick a more realistic comparison in the form of Google Inc (NASDAQ:GOOG)’s double click ad exchange, which in its first year of business, that is 2009, recorded $450 million, and notched $1 billion in year two. They expect it to record at least $2 billion this year.  This is a sign of what Facebook’s FBX could bring to the social networking giant within the next few years.

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