“Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Bob Buch, CEO at SocialWire.
Facebook launched a remarketing product in February called Dynamic Product Ads (DPAs), which essentially represents the beginning of the end for the hundreds of ad tech companies that have built their businesses around retargeting.
That’s because remarketing is simply not that hard to do, and a monolith like Facebook can do it better and for less money than anybody else.
To that end, Twitter’s recent acquisition of remarketing company Tellapart is the proverbial canary in the coalmine. If I were a retargeting company and the biggest source of retargeting inventory just undercut me, I would be looking for an exit. Tellapart was one of the best and most valuable privately held retargeters, but the hundreds of others will not fare so well.
The End Of FBX And The Beginning Of The DPA Era
Facebook wants its advertisers to buy remarketing directly through Facebook instead of using remarketers and DSPs like Rocketfuel, Tellapart and Triggit.
These remarketing companies used to buy inventory on Facebook through the Facebook Exchange (FBX), before selling it to customers, such as Neiman Marcus and Williams Sonoma, for a significant markup – often more than 100%. Facebook recognized that it was only seeing a fraction of the revenue these retailers paid, while remarketers took the lion’s share. All Facebook had to do was cut out the middleman and it could more than double its revenue.
When Facebook announced it would enable remarketing through its native Dynamic Product Ads product, it also quietly told several of its top partners that they would no longer be able to access inventory on FBX. The first partners that were migrated off FBX were those doing almost nothing more than matching a user who had viewed a product with an ad for that product. This is remarketing at its simplest, and Facebook now enables that natively through DPAs. Facebook gave a respite to a few firms, including Tellapart and Criteo, that could demonstrate that they had built more complex technology, but soon Facebook will add more functionality to DPAs and even those companies will be forced to migrate their clients off FBX.
Facebook’s Mobile Advantage
To make the situation even more dire for remarketers, Facebook’s native remarketing offering has a significant advantage over all other forms of remarketing: It works across all devices, including mobile phones. This means when a user views a product on his or her phone but doesn’t buy it right away, Facebook can show that same product to that user in an ad on their desktop or iPad, where they’re more likely to complete the purchase. Facebook’s knowledge of people’s true identity makes this possible in a way that is unparalleled on any other platform.
With 70% of Facebook’s traffic coming from mobile, retargeting on mobile is a massive opportunity to reach potential buyers more quickly and in the moment where they can complete the purchase. Since Facebook users spend so much time on mobile, advertisers can find orders of magnitude more scale for their campaigns on mobile than on desktop. While conversion rates are lower on mobile because of the hassle of entering credit card numbers, the supply and demand dynamics often keep the cost of mobile inventory less than half as much as on desktop, which would push the return on ad spending for mobile retargeting as much as 25% higher than desktop, as measured on a last-click basis
This spells bad news for retargeters using FBX that don’t have access to Facebook mobile. They are missing out on the lion’s share of inventory that is also the most profitable.
A Better User Experience
Facebook also offers a better user experience from a privacy perspective because the ownership of the data and the mechanism for collecting and storing it are owned by the same entity – Facebook. When data is stored in your browser, there is no clear accountability for it. The remarketer owns the data but the browser, such as Firefox or Chrome, is the collection mechanism, resulting in a recursive loop of finger pointing if something goes wrong or a user wants to stop being tracked.
Facebook, for all the privacy complaints, represents a single throat to choke if something goes wrong. Users can hold Facebook accountable for bad advertising or invasive privacy violations by changing their privacy or tracking settings, or by canceling their account entirely.
Pricing: A Race To The Bottom
Remarketing companies will find it increasingly difficult to justify charging their customers 100%-plus markups on Facebook inventory when marketers can upload their product catalogs directly to Facebook and get the same product for free.
Facebook has changed the game to such an extent that some companies now offer remarketing as a SaaS product or include it for free. Many companies will take a short-term approach and try to maintain the same profit margins on top of remarketing, but when marketers realize that once these campaigns are set up and there is little additional work to maintain them, these fees will be the first line items that are cut from the marketing budget.
Better For Marketers
This consolidation of remarketing is a good thing for advertisers because it will be less costly, more transparent and, most importantly, more incremental. When marketers use one partner to help them with upper-funnel prospecting and a second partner to do retargeting, both partners battle it out for attribution of the revenue generated by the combined activity. The remarketer usually wins because it tends attribution to capture the last click before the user makes a purchase, but in most cases, the remarketer was adding the least value.
By consolidating remarketing with other marketing initiatives, an advertiser can view it all as one consistent conversation with their customer. In this way, the marketer can properly allocate their spending between building demand and capturing that demand, therefore striking the balance between growth and retention.
Any marketer that is paying any markup for remarketing on Facebook is paying too much. Marketers that don’t know what markup they’re paying are probably in an even worse situation.