Facebook’s unveiling last week of a mobile feature called Nearby Friends, through which it might enable location-targeted ads, places the company in a highly competitive segment of tech vendors offering similar products.
The company that will develop the best location-targeted ad product, however, is the one that will couple it with the most relevant consumer data.
Consider the fundamental difficulty of location-based ad targeting: The advertiser must convince people to look at an ad and change their route when they’re trying to reach a destination or are otherwise engaged.
“Relevancy is the challenge,” noted Ray Wang, chairman and principal analyst at Constellation Research. “Context of not only location, time, relationship, role, sentiment and intent need to come together in real time … and it's been very hard for all these pieces to converge at the point of offer.”
The most effective location-based ads combine data about a consumer’s whereabouts with affinity data, said Melissa Parrish, VP and research director at Forrester Research.
“When you have location plus affinity data, then you have a targeting opportunity that is potentially unique,” Parrish said. “So when you talk about Facebook’s approach (to location-based ads) you have to look at the full spectrum of data that it could bring to bear.”
What kind of data does Facebook have? The social network has approximately 1 billion monthly active users. It has information about users’ preferences (likes), mobile app usage data, log-in info including email addresses, phone numbers and birthdays and other data points.
In addition, Facebook is testing a mobile ad network that would enable it to show targeted ads on other mobile apps. However, the chances of Facebook applying data from its Nearby Friends feature to its rumored mobile ad network anytime soon are slim, according to Michael Boland, senior analyst and VP of content at BIA/Kelsey.
Facebook is more likely to apply location targeting to ads within its own mobile apps instead of third-party apps. “More granular location tracking for the latter could come in the future,” Boland speculated. “But Facebook is very careful about rolling these things out, especially anything to do with location tracking given the privacy spotlight that is perpetually shining on them.”
Facebook faces other challenges before it can monetize location targeting ads, Boland added. Given that Facebook's news feed ads lean toward downloads and other calls to action that have less to do with location relevance or offline transactions, marketers will have to experiment and test new messages such as local ads.
Also, most of the advertisers on Facebook's mobile ad platform are large brands that are more interested in reach and branding, Boland pointed out.
"Location targeting is great at boosting relevance and ad performance, but it greatly impedes reach by segmenting audiences into tiny geographic pockets," he said. "And for many brand advertisers and agencies, campaign reach is a top objective."
And finally, SMBs "need their hands held" before they can invest in new ad units. Facebook has the resources to deploy salespeople to walk business owners through location targeting or partner with resellers, but the process would still take time.
Facebook is also competing with Google, which has more affinity data than anyone else, argued Parrish’s colleague, Forrester analyst Nate Elliott. “Google’s affinity data covers a much broader range of social actions,” Elliott wrote in a blog post.
Google tracks the viewing preferences of more than 1 billion unique monthly YouTube visitors as well as the activities of more than 500 million Gmail users, not to mention a vast amount of search data.
Google has enhanced its local ad offerings by incorporating ads for local businesses into Google Map searches and it acquired Waze, a crowdsourcing traffic app that shows ads as destinations on a map.
But like other companies, Google also faces consumer privacy concerns. The Mountain View, Calif., company has been slapped with lawsuits over its use of Android data and other user data. While Facebook allows users to opt out of the Nearby Friends and Location History tracking features, it warns users that “Location History must be turned on for some location features to work on Facebook, including Nearby Friends” and that it may still collect a user’s location data regardless.
It remains to be seen which company will be able to collect enough user data and integrate it into relevant ads without alarming consumers.
Companies are nearly there, Wang said: “The data is mostly there, the technology is almost there, and then there's the consumer who's not sure they want to opt in because of privacy.”
Part of the challenge in delivering location-based ads is understanding the consumer’s level of comfort in being targeted, Parrish said. “Location targeting is not something the vast majority of consumers are expecting and brands want to avoid that creepiness factor,” she said.