Facebook (Nasdaq: FB) continues hunting for a major development that'll lure investors back to its stock.
In order to do that, it has to show it can appease both users and advertisers. The world's largest social network, which has amassed some 900 million users worldwide, earned $3.15 billion from advertising in 2011.
But the Menlo Park, CA-based company has to attract more advertisers to its site since they've become disenchanted with Facebook's lagging mobile ad strategy.
Worries that Facebook's ad revenue growth is not moving in tandem with its explosive membership have weighed on the stock. Since going public on May 18 at $38 a share, Facebook stock has slumped 26%.
Recently, the company debuted mobile ads and other services to buoy sales, but investors remain skeptical that the efforts will successfully boost revenue.
"Facebook's been having challenges coming up with effective advertising. The company is hoping to use that inventory on the right side of the page to deliver advertising that is more targeted," Debra Aho Williamson, an analyst at eMarketer Inc., told Bloomberg News.
That's why the company is introducing Facebook Exchange.
Can Facebook Exchange Breathe Life Into Stock?
Facebook's latest move to satisfy advertisers is an effort that will more successfully target ads to consumers.
Facebook announced this week it will launch real-time bidding for advertising on the site, mimicking technology used by several other Web companies, including search giant Google (Nasdaq: GOOG).
Dubbed Facebook Exchange, the service will allow advertisers to pinpoint precise types of users on the social network site based on their browsing history, a company spokeswoman said in an interview.
Marketers using Facebook Exchange will be able to target people who have trolled certain Websites in the past based on cookies (code pieces) that track activities on the Web.
The new bidding process is designed to help advertisers distribute more timely messages. An apparel company wanting to reach team-specific fans could arrange ads that highlight a winning team or a big game, for example.
Facebook has already begun placing cookies on the Internet browsers of its members, which will be utilized by its technology partners to identify Facebook users. According to a company spokesperson, while there is not a way to opt out of this type of tracking on Facebook's site, vendors will allow users the option to block cookies.
Data shows a rising percentage of display ads are fueled by cookie tracking. Real-time bidding will account for nearly $5.08 billion, or 27%, of the estimated $18.9 billion to be shelled out on U.S. online display ads in 2015, researcher IDC reports. In 2011, real-time bids produced $1.07 billion, or 9.8%, of display ad sales.
Ad prices will be based on the cost per thousand viewers with spots sold by third party technology partners.
Facebook has been trying to show advertisers that its Website is an efficient way to reach customers. Earlier this week, Facebook and researcher comScore detailed in a joint report that ads on the social network persuade users to purchase products in stores and online.
However, a Reuters/Ipsos poll released last week showed that just a few members say they are swayed by such ads. The poll found that a paltry 1 in 5 people on Facebook have bought products because of ads or comments they read on the site.
Furthermore, Reuters reported that retailers are feasting on free Facebook tools, eschewing ads.
Krishan Agarwal, president of online luxury retailer Melrose.com, told an audience of Internet retailers last week that Facebook helped his company generate approximately 25% more sales over two years. But, he added, he spent less than $1,500 on Facebook ads during that time.
"Some of the tools that are free are just a lot better than ads on Facebook," Agarwal noted.
Facebook's success with money-making ads is crucial to its survival as a now public company.
Facebook stock was up 3% by 2:30 p.m. Friday to $29.15, positioned to end the week up more than 7%.
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