Facebook and Twitter Will Dominate Display Advertising in Two Years (Or Less)

Originally published in AdExchanger 3/24/14

Off-network ads from Twitter and Facebook are poised to transform the display ad industry and disrupt many exchanges that have dominated the display market for nearly a decade.

Facebook recently announced a test of off-network ads on mobile, and Twitter’s purchase of MoPub sends a strong signal about its intent to take Twitter ads off-network. In turn, the Open Web is forming its own battle lines, with Oracle’s purchase of Blue Kai, Rocketfuel going public and Turn preparing for its IPO.

Why Social Networks Will Best The Open Web

The Open Web fights with aircraft carriers and drones while social uses rifles, but the battle will increasingly be fought on terrain where social has the advantage: mobile. The Open Web uses cookie-based technologies and real-time bidding (RTB), which is far more advanced than the technology used by Facebook and Twitter for advertising on their networks. But when the battle is being fought on mobile, where cookies don’t work, advanced targeting is rendered almost useless.

In contrast, social networks, such as Facebook, Twitter, Pinterest, Instagram and Snapchat, all have a secret weapon: They know who you are. This is what is known as “strong identity.” On social networks, users must register with their email and are always logged in when accessing the network. This strong identity makes it possible to target the same user across different devices. This advantage alone is enough to make social platforms the de facto future of display advertising, but there is more.

Custom Audiences Push Social To The Finish Line

The Open Web has retargeting. Social platforms have custom audiences. The success of retargeting is well-known, with companies like Criteo building billion-dollar businesses on the concept, but the success of custom audiences is still one of Facebook’s best-kept secrets. The reliability and value of the data you can glean from cookies significantly degrades over time, so most retargeters generally focus on the first 24 to 48 hours after you visit a page. This short window of utility is the inherent weakness of cookie data.

With custom audiences, retailers can build audience segments based on everything you’ve ever purchased over several years. This can provide a much broader and more reliable picture of who you are and what you are likely to buy in the future. While purchases are stronger signals, there are fewer of them, which up until now has created a difficult dilemma for Facebook.

As a stopgap solution, Facebook launched the Facebook Exchange (FBX), which let retargeters use their own cookie data to advertise on Facebook as if it were just another site on the Open Web. Facebook has a love-hate relationship with FBX because while it provides significant retargeting revenue, it effectively commoditizes Facebook into just another website because marketers aren’t using any of Facebook’s proprietary data.

Also, FBX doesn’t work on mobile because it is cookie-based and not registration-based. FBX only drags social into an antiquated cookie-based display world, which is why Facebook and other social platforms are looking ahead to solutions that work on mobile. That’s why they will win.

A Better Replacement For FBX

About a month ago, Facebook quietly launched a retargeting killer called Website Custom Audiences (WCA). They are careful not to position it as such because they don’t want to cannibalize FBX revenue yet, but WCA will be disruptive. It’s effectively the best of registration-based platforms combined with the best of cookie-based platforms.

WCA lets a retailer retarget anyone who has visited their site, whether logged in or not, and then layer on all of Facebook’s data about that user and find them on any device. This is the holy grail of display retargeting, and Facebook, Twitter and other registration-based platforms are uniquely positioned to own it.

Open Web Is Better Now, But Not For Long

The biggest impediment to social platforms winning this battle is technology. The RTB technology that cookie-based platforms use is far more advanced than the Ads APIs offered by Facebook and Twitter. Marketers want to reach an individual user, and make real-time decisions about how much that user is worth as they do with RTB platforms.

Once Facebook and Twitter transform their Ads APIs into something that looks much more like an RTB platform, there will be nothing stopping them from dominating display advertising for the next 10 years.

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