Facebook’s Inventory-Ads Rollout Foreshadows An Ad Tech Ecosystem Reset

niiaheneddtData-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 Nii A. Ahene, chief operating officer at CPC Strategy.

Two large and powerful players dominate today’s digital advertising world: Facebook, which owns social advertising and has emerged as a big fish in mobile app advertising, and Google, a leader in search advertising and a major player in the display space.

Beyond those two big guns are hundreds of smaller but rapidly growing ad tech players fighting for display, search and social budgets. The last five years have been lucrative to everyone involved as the ability to serve the right message at the right time has improved thanks to increased inventory, open exchanges and better targeting capabilities.

Facebook’s recent moves however, suggest a digital advertising shake-up is on the way.

Earlier this month, Facebook announced the launch of Facebook Product Ads. According to social-media giant, Product Ads are designed to help businesses promote their entire product catalog across all consumer devices.

In isolation, the move is fairly innocuous, but when placed into context with the expulsion of more than a dozen FBX partners, the slow demise of the cookie, and other recent moves by the company, the stage is clearly set for upheaval in the world of ad tech.

Search No More?

Facebook’s advertising innovations since going public – including retargeting, custom audiences and now product-level ad units – suggest the company is coming to terms with the fact that direct response matters. Retail advertisers like Fab and affiliate platforms like Teepspring have shown us that direct response campaigns on social not only work, but also they can scale if managed effectively.

This means that search’s dominance as the channel du jour for direct response is likely to come under pressure as advertisers reallocate budget and look to leverage these new tools to support ROI-driven advertising campaigns.

Third-Party Platforms Become Less Vital

Ad tech companies such as Criteo and AdRoll that have long relied on a service-plus-media arbitrage model to increase revenue will likely face increased margin pressure as the growth of the arbitrage piece of their business decelerates.

Some people have suggested that these companies’ rapid growth was due in large part to being aggressive in leveraging their FBX partner status and capability to target small and medium-size businesses by helping them retarget Facebook users when Facebook did not provide this ability natively.

It’s been just over a year since Facebook released a first-party retargeting pixel, leading many retailers to question the continued value of advertising via third-party platforms.

The introduction of native product-level-inventory ad units by Facebook removes another unique differentiator from ad tech companies that do not own their own networks, while at the same time challenging Google’s dominance as the leader in inventory-driven advertising campaigns for retailers.

Cross-Device Tracking Scramble

The slow but eventual death of the cookie, coupled with the continued growth of mobile, means that companies must develop a new cross-device tracking method or they will be hard-pressed to follow users across devices at all. The best cookie-dependent companies can hope for is that a white knight, in the form of Twitter, Apple or Microsoft, will emerge as a data layer or exchange that ties web-browsing behavior to individuals across devices.

That said, none of these players have as large a cross-browser user base as Google or Facebook limiting their potential reach.

Beyond Facebook’s Walled Garden

The once-neatly drawn battle lines of search and social are not nearly so neat any more. Google+ may have lost as a social network, but the effort and the updated privacy policy that swept in behind it gave Google a unified data layer to connect search and YouTube behavior with desktop and mobile-device identities, allowing Google to strengthen its display-publisher network across devices. I speculated early last year that Facebook would eventually look outside of its walled garden to monetize, and it has taken baby steps with toward that with its Audience Network on mobile, which has seen impressive growth in its first year.

Facebook has come a long way since boldly proclaiming that Beacon and frictionless sharing would transform advertising by themselves. Other factors signal an increasingly aggressive social juggernaut, including Facebook’s longstanding reluctance to publicly certify DoubleClick as an FBX partner in spite of statements by Google announcing the partnership, the re-release of Atlas in the fall of 2014 and the decertification of more than a dozen smaller ad tech companies from FBX this month. All of these moves hint at a future where Facebook will unabashedly compete for the right to serve ad inventory beyond its corner of the web to advertisers on desktop, mobile and applications, putting Facebook in direct competition with Google and many of the ad tech players it helped to jumpstart.

Follow CPC Strategy (@CPCstrategy) and AdExchanger (@adexchanger) on Twitter.

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  1. I have been a bit confused about Facebook Product Ads since it was rolled out, but your post have really put it in perspective for me. So I thank you for that. I’m now looking forward to see where this goes.