A new kind of Facebook advertising

Facebook is leveraging what it knows about its users – a data set potentially more valuable that Google's – to test a new kind of 'real time' ad service that reacts to users' online actions, taking into account their age, gender and passions. It's a bid to capture some of America's $12 billion search business.

Facebook is leveraging what it knows about its users – a data set potentially more valuable that Google’s – to test a new kind of ‘real time’ ad service that reacts to users’ online actions, taking into account their age, gender and passions. It’s a bid to capture some of America’s $12 billion search business.

This month Facebook quietly started testing its own version of intent-based advertising, delivering real-time ads based on user wall posts and status updates. For example: Users who update their status with “Mmm, I could go for some pizza,” could get an instant ad or a coupon from Domino’s, Papa John’s or Pizza Hut.

The test, first reported by Ad Age last week, involves only 1% of Facebook users, though on the social network that’s a focus group of 6 million people. In the testing period advertisers aren’t buying real-time “relevant ads;” rather, Facebook is attempting to match existing ads in its system to status updates and wall posts in real time, based on a combination of user profile data (including at times, keywords and interests) along with the current update. But when it does come time to sell these ads, experts suggest advertisers will be willing to pay much higher prices, helping to boost the nearly $2 billion in revenue the site reaped in 2010.

Offering ads relevant to a person’s immediate needs or state is one thing. Facebook’s real opportunity – and what sets it apart from Google – lies in mixing that relevancy with all the information it already has about users based on their profiles, such as location, age and gender.

“If Facebook can combine people – who they are, how old they are, where they live – with intent, it essentially becomes the most massive ad platform ever,” said Michael Lazerow, CEO of Facebook marketer Buddy Media. “There’s no other platform in the world where there can be 10,000 people a day saying ‘I’m having a baby’ or asking ‘Hey, what’s your favorite hotel in Turks and Caicos?'”

Facebook has been using wall posts and status updates as factors for ad targeting for awhile, but never in real time. In general, users’ posts and updates are collected in an aggregate format, adding them to target audience profiles created with data collected over time. Keywords are a small part of that equation, but Facebook says sometimes they aren’t even used. The company said delivering ads based on user conversations is a complex algorithm continuously tweaked and perfected. The real aim of this test is to figure out if those kinds of ads can be served at split-second speeds, as soon as the user makes a statement that is a match for an ad in the system.

There are key differences between Facebook’s real-time ad targeting and the matching of ads to search queries on Google, Bing and Yahoo. The nature of status updating and wall posting on a social network is public, while search is generally done in isolation.

“It’s different because searching is inherently an insular activity – it’s you and the search box and no one else sees what you see,” said Ian Schafer, CEO of digital agency Deep Focus. “On Facebook, you’re sharing something for everyone to see – your intentions are laid bare and it’s an opportunity to influence conversations.”

Not surprisingly, many analysts have brought up the privacy factor – how creepy is it to say you just got done working out and instantly see a Gatorade ad?

“But this development is also fraught with all kinds of possibilities of invading into the user’s inner sanctum,” aid USC Graduate School of Business professor Hank Wasiak. “It’s essential to realize that everything you do may not be about a sale,” he said. “The companies that do that will be the ones that succeed.”

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