Facebook's FBX Success Proves It: Social Data Are Worthless

FBX Gives Advertisers Value With Links to Behavioral Data, the Social Data Aren't Enough

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Facebook's announcement of the FBX exchange and its huge success was one of the big stories of 2012 for the data-driven advertising industry. Reports from leading demand-side platforms that access FBX for advertisers show that ads placed on Facebook through the exchange are outperforming the traditional ad exchanges that offer advertising on a wide range of news, information and entertainment web sites.

That's great news for Facebook. Finally it can monetize its ad space at a meaningful rate and drive more revenue. But it's also terrible news for Facebook because it proves that Facebook's internal social data alone have little value to advertisers. To be blunt, most social data are worthless.

The FBX exchange is increasing the value of Facebook ad space by allowing an advertiser to use behavioral data to determine whom to target on Facebook. Behavioral data perform much better than Facebook's social data and command a higher rate at auction.

Amazon 's success in the advertising business is further proof of the incredible value of behavioral data. Amazon has built a $500-million advertising business all because it has one huge advantage -- volumes of behavioral shopping data. And this trend is going to continue. E-commerce sites are going to continue to enter into the advertising business and take market share from other publishers because they have a real competitive advantage owning volumes of behavioral data.

Facebook's biggest revenue opportunity in the near future can be realized if the company can figure out how to integrate its social data with high-value behavioral data to create a stronger targeting product. The combined data will be stronger than either data set is on its own.

Twitter, Buzzfeed and every social-media player coming down the pike should be taking notice. Native-ad formats aren't the answer. New formats will help, but they won't have significant value unless they are targeting the right person. And that takes behavioral data.

I know this is a hard pill to swallow. Many social-data business models are based on the magical proprietary social-data asset. But there is no reason for these companies to delay the inevitable. Facebook just showed that the social-data asset isn't worth very much, and it's not going to get the job done for advertisers. It's time to jump in the game and admit that what people do is far more valuable than what they say, and leverage behavioral data to grow business.

Alan Pearlstein is president-CEO ofCross Pixel Media.
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