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Facebook Fuels Online Advertising Start-ups

Facebook beat fourth-quarter earnings expectations today. Online ad start-ups had already predicted positive news, thanks to the new FBX advertising exchange.
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Today, Facebook released its fourth-quarter earnings, beating analyst expectations with revenue of $1.59 billion and profits of 17 cents a share. But several marketing start-ups already predicted the increasing power of the social network in online advertising--by the boost its giving their own businesses.

Much of Facebook's recent rise as an advertising platform has driven by its new ad exchange, Facebook Exchange, or FBX, which launched in September. The exchange lets advertisers use real-time bidding to buy ads on the social network. That includes ads that show products to Facebook users according to their browsing habits, a practice known as "retargeting." So far, FBX is only available to more than a dozen advertising platforms, including AdRoll, MediaMath, and Triggit. Those companies have more than doubled their revenue since gaining access to FBX.

Facebook Ads Deliver a Return

Ads on FBX have outperformed those on other ad exchanges, including Google's, according to Jeff Green, the CEO of The Trade Desk, another ad platform that uses FBX. As a result, says Green, his company has seen spending increase on the platform even after the holidays, when business usually experiences a drop-off in activity. "Facebook likely represents the first real competitor to Google," he says. "It makes the game interesting again."

Because of the success of FBX, more clients are making Facebook a larger part of their ad budgets, says Eoin Townsend, the chief strategy officer of MediaMath, a 2012 Inc. 500 honoree. "You used to have a situation where Facebook was an exploratory spend--maybe a company would commit $100,000," Townsend says. "That has shifted dramatically."

That observation is backed up by recent data released by Spruce Media, an online marketing company devoted to advertising on Facebook. Ad spending on the social network has shifted from basic ads that appear in the sidebar of Facebook pages to other types of ads that carry a higher price, such as sponsored stories that appear in user news feeds. Rates for the company's News Feed ads have risen 36 percent.

More opportunities for Facebook advertising growth may be on the horizon.

Earlier this month, Facebook announced Graph Search, a feature that lets members of the social network find others with specific interests. That capability could eventually allow companies to further tailor their advertising, says Lucy Jacobs, the COO of Spruce Media.

Mobile advertising presents another possible area for growth. Though 23 percent of Facebook's revenue now comes from its mobile platform, its mobile ad rates remain relatively low, and the company is just beginning to experiment with ad formats for the medium, she says.

As Facebook's advertising ecosystem grows, so too will competition. Townsend expects to see some consolidation in the industry long term, as companies vie to become the one-stop shop for advertisers. "Clients don't want 20 media partners and seven tech partners," he says. "I see a few companies working together in this environment to become a single platform."

 This story was originally published at 4:05 PM, and was updated at 5:20 PM after Facebook reported its earnings.




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