Facebook Inc, the world's biggest social networking site, has teamed up with a Chinese partner on real-time bidding (RTB) for advertising on its site, a technology used by Google Inc and other Internet companies to target advertisements to consumers more effectively.
The move will enable the US-based company to reach more Chinese advertisers who want to place more targeted advertisements on Facebook even though its service is not accessible in China currently.
Facebook is cooperating with Beijing PinYou Interactive Information Technology Co (iPinYou), a Chinese advertisement broker that places advertisers' bids on RTB platforms. It is matching the system of its RTB service, Facebook Exchange, with iPinYou's, said Huang Xiaonan, chief executive officer of the Beijing-based company.
Facebook Exchange enables advertisers to reach specific types of consumers based on their browsing history with the usage cookies on consumers' computers. For example, an Internet user who visited Web pages related to trips to Paris may see advertisements of Paris' hotels and flights later on Facebook.
"There is demand from Chinese advertisers to reach out to US consumers and this is the way how Facebook can cash in on the Chinese market," said Huang. The chief technology officer of iPinYou had in October along with a team of Chinese advertisers held talks with Facebook officials on possible avenues for cooperation.
An e-mail sent to Facebook for more information went unanswered.
There are a large number of Chinese exporters that want to reach international customers, and most of them now use Google to place advertisements, said Hong Bo, a Beijing-based IT analyst and founder of consultancy firm IT5G.
"The most widely-used way for these exporters is to buy keywords on Google because keyword searching is the most directly linked measure of consumers' willingness to buy," he said, adding that Facebook is exploring ways to improve the effectiveness of social advertisements.
Facebook launched its RTB service in the US and Europe in September, a move to make it easier for users to focus on advertisements relevant to them, compared with traditional display advertisements.
Google, which remains the largest player in the online advertising sector in the United States, has a similar service called DoubleClick Ad Exchange. Amazon.com Inc, US biggest online retailer, has also launched its own RTB services, says a report in Adweek earlier this month.
Huang says that the revenue earned by Facebook from traditional display advertisements, measured by cost per thousand price, is 5 to 10 times less than vertical websites. She adds that it is also the reason why the US-based social networking company launched Facebook Exchange to improve the relevance of its advertising.
An increasingly large proportion of display advertisement sales will be generated by the RTB technology. RTB will account for 27 per cent, or about US$5.08 billion, of the US$18.9 billion marketers are expected to spend on online display advertisement in 2015 in the United States, according to market research company IDC.
RTB generated sales of US$1.07 billion last year, accounting for 9.8 per cent of total display sales in the US.
Figures on RTB sales in China are not available, as the technology is still not widely used in the country.
"Those who want to try RTB advertising first on Facebook are exporters and travel companies," said Huang, adding that some of the company's corporate customers have shown willingness to try out Facebook.
Facebook, which had 1 billion monthly active users by September 30, earned US$3.15 billion from advertising last year. However, its share prices have tumbled as investors' think it is not generating enough revenues despite the huge user numbers.
Carlos Kirjner, an analyst with Bernstein Research, estimated that Facebook Exchange is on course to generate annual revenues of US$1 billion. He also estimates that the service could take up to one third to half of the whole market for advertising generated by RTB.
Facebook Chief Operating Officer Sheryl Sandberg earlier told investors that she believed the global RTB market was somewhere in the vicinity of US$2 billion.
In June, Facebook and US researcher ComScore Inc said in a joint report that advertisements on social networking sites encourage users to buy products from brick-and-mortar stores as well as online platforms.
However, in a separate poll by Reuters and Ipsos, results showed that just one in five people on Facebook have bought products because of the advertising or comments they saw on the website.
Other than Facebook, iPinYou has already connected with the RTB platforms of Alibaba Group Holding Ltd, Tencent Holdings Ltd, and 14 Chinese online video companies, Huang said. She added that with the technology, the cost for an online video provider to get a new customer was just half of the traditional way.
IPinYou has about 100 customers, most of whom are in industries like e-commerce, finance, travel, car, and fast moving consuming goods.
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