Could Facebook’s new segment targeting solution, called “partner categories,” finally open up competitive, cost-effective ad serving to small and mid-size businesses? This new feature divides users into one of 500 categories, such as “people who like to buy fresh produce” or “people who like to ride bikes.” This information is then filtered through location-specific data categories, such as Zip code or the city you’ve designated as your location. Under the old data model, attractive segments would then be bid on in order to figure out to whom a business should advertise. With the new system, if a small business knows what categories it wants, those are the categories it can choose from. While it may seem similar, the differences could be monumental in terms of a company’s ability to manage spend effectiveness.
Segment data comes from the providers Acxiom, Epsilon, and Datalogix. They refine and help manage the data that comes from consumers’ interests, likes, purchases, etc. While information from these companies is pricey – often too expensive for smaller businesses – Facebook took notice and decided to shoulder the costs of retrieving this data. No longer will companies have to pay for the data, and then turn around and pay for the actual campaign. Instead, just pick your category and the money can go straight to ads. Win for Facebook, potential win for ad buyers.
How Facebook Makes Its Money Back
Just like with any bidding war, the items in higher demand are worth more money depending on how much large companies are willing to pay. These data providers know which segments are more attractive, and they charge accordingly – you can be sure they won’t be taking a financial hit in spite of eliminating the bidding war. Instead, Facebook has decided to pay this financial burden. So how could this possibly be worth it to Facebook?
The old model of the bidding war typically resulted in data costs that end up squeezing out the smaller companies with less to spend. Not only do you have to compete with bigger pockets, but you have to make sure that you don’t spend your entire advertising budget just bidding for the data; you still have to pay for the ads in order to actually use the data. And smaller businesses don’t have the budget to do broad canvas advertising. While seemingly altruistic, this model has definite benefits for Facebook, which can be easily summed up:
- Smaller companies can skip the bidding war and go straight to putting ads on Facebook. This way, Facebook gets more voices out there, which means more money for Facebook.
- Because Facebook can define the segments marketers can choose from, it can avoid any instance where a segment becomes too niche to be valuable. It can ensure that every one of its 500+ categories is being used. And once again, more ads equal more money.
- By paying for this data itself, Facebook is ensuring that each category will be represented with advertising, which should offset the cost of retrieving the data – a win for small businesses and a win for Facebook.
Categories vs. Segments
Just like with certain segments, certain categories will be more popular, but under this new category system, the ad rate – not the cost of data – is what fluctuates. Companies will no longer be pushed out by a bidding war; they will have the option to use their money on a different, but still relevant (and less expensive) category. Regardless, marketers must remember that skipping the bidding war does not mean that all categories are accessible to everyone.
The bottom line is that the categories system will allow for more specific, refined targeting with a much more accurate reach. With partner categories, Facebook eliminates too-broad targeting and helps ensure that the category you belong to is relevant. This should be an immediate win for Facebook. Ultimately, however, small businesses may turn out to be the big winners in the end.
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