Social media network Facebook is expanding Facebook Exchange (FBX), a mechanism for targeting ads based on user online behavior, with a closed alpha test of FBX in user News Feeds.

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While Facebook advertisers could previously run FBX-targeted ads on the right-hand side of users’ Facebook home pages, participants in the test can now run FBX-targeted Page post link ads on both the right hand side of the home page and in the news feed. The ads lead to specific landing pages designed to produce conversions.

Facebook says its users spend the most time in the News Feed section of their accounts and FBX-targeted ads in News Feeds will increase the relevancy of the ads they see there. Demand side platforms including TellApart, MediaMath and Nanigans are currently participating in the alpha test, which will be expanded to other platforms and advertisers in the near future.

Giving Advertisers What they Want - at a Cost

By tentatively allowing advertisers to place FBX-targeted ads in the News Feed section, Facebook is giving them exactly what they want (which is usually what companies do for the people who keep them in business). Adweek says that Facebook advertisers had been complaining FBX-targeted ads were confined to the less frequently viewed right-hand side of the page.

An Adweek article quotes Facebook COO Sheryl Sandberg saying in an earnings call that 65% of Facebook advertisers run ads in the News Feed. In addition, Rob Leathern, CEO of social ad firm Optimal, is quoted as saying News Feed ads perform “at least 10 times better” than ads on the right-hand side of the page. However, the article also points out that “Facebook is essentially capping the number of News Feed ads despite the infusion of FBX which will likely impact advertisers' ability to crack the feed” and also increase the price of News Feed ads.

Tapping the Value of Facebook Exchange

When Facebook officially introduced Facebook Exchange in September 2012, CMSWire commented that “it could prove to be even more lucrative than Sponsored Stories, even if some Facebookers don't like the idea of this kind of service.” CMSWire correspondent Anthony Myers went on to say that “now that it is a public company, (Facebook) is beholden to its investors,” requiring them to “come up with a way to make lots of cash.”

FBX targeting allows Facebook to “take advantage of its immense data set without going too deep into users' privacy.” And by expanding FBX targeting into the prime News Feed real estate, Facebook can simultaneously satisfy advertisers and investors, the two groups that have made CEO Mark Zuckerberg a billionaire and allowed Facebook to escape the fate of so many other social networks founded in the early 2000s. Notice that Hollywood never made a MySpace movie.