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Reaction: Advertisers cautiously optimistic after Facebook says it’s pulling third-party targeting data

On Thursday, Facebook said it would be phasing out the use of third-party data for ad targeting on the platform over the next six months.

Since the ignition of the firestorm over Facebook’s handling of Cambridge Analytica’s misuse of user data, there has been one group that hasn’t had pitchforks out for the social network: advertisers. With few exceptions, they’ve sat tight, largely insulated from the fallout. Until now.

The removal of third-party data sources means a large number of ad targeting attributes such as in-market behaviors and household income will no longer be available. See our companion FAQ on the what and whys of the announcement for more details.

While the change is significant, marketers I corresponded with yesterday are cautiously optimistic. Some will remember the early days when Facebook ad targeting was pretty terrible, the product changed constantly, and communication was mostly maddening. They’ve seen the company skyrocket from nothing to a $40 billion ad business because of its data, partnerships, ad units and massive audience that comprises basically everyone on the internet.

There are two primary reasons advertisers would redirect budgets from Facebook. Both have to do with performance: either enough users abandon the platform to cripple its scale or the targeting becomes inefficient. Secondary to those concerns are worries about brand safety and branding – see Mozilla and a handful of others who publicly announced they are “pausing” ads on Facebook until privacy and data concerns are addressed. To keep advertisers and the market happy (it’s struggling with the latter), Facebook must stave off mass user defections and paint a better picture for regulators. Thus this change.

“It’s really not surprising that Facebook would limit the use of third-party data, considering the scrutiny the company is under following the Cambridge Analytica scandal. As the demand for transparency increases, Facebook will likely focus on its users to ensure they do not abandon the platform,” said Shuman Sahu, Director of Performance Media at digital agency Nina Hale. “Even with limited data available, many advertisers will continue to leverage Facebook and its other properties (Instagram, Messenger), which, combined, offer unmatched scale in the social space,”

That said, there’s an understanding that this is a new phase.

“As both a champion and critic of Facebook ads for nearly a decade, I can honestly say I’m excited for the next evolution,” said Merry Morud, who is Associate Creative Director at digital agency Aimclear and currently embedded at Uber as a paid social contractor.

Who will feel it most?

“Many Facebook marketers who relied on this data to find or qualify audiences will feel sucker punched, and are probably scrambling to identify either: other channels where this data is available with the same or similar AND/OR operator capabilities or are identifying Facebook-based targeting variables that can approximate big data targeting. Often we’d target an audience two ways: one that used partner data and one which used Facebook-native targeting that was a proxy for those big data targeting variables,” said Morud.

And some advertisers are going to be affected more than others. Advertisers that have the least information about their customers will face the biggest adjustments.

“Some categories that are more data poor about their customers like CPG may be more impacted because they may need to trade off to target a more general audience and/or because competition, and, in turn, CPMs, will increase to these FB-defined audiences. All that said, partner categories had carried a CPM premium, so the impact on efficacy is uncertain,” said the head of social for a large agency who did not want to be named.

“For advertisers that have relied on targeting parameters built using third-party data sets, this news is definitely going to cause some alarm,” said Sahu. “Prospecting and targeting Facebook users based on personas, which often use household income and financial data, will be significantly more difficult. Marketers that continue to leverage Facebook for advertising will need to get creative in how audience attributes are inferred, based on the behavior and interest data that continue to be provided.”

“Over the next few months, we expect a few changes to occur,” he told me. “First, advertisers that have relied on these third-party data fields will need to test alternate targeting strategies. Businesses in more complex verticals, such as healthcare and financial services, may need to look to alternate audience attributes to continue segmentation and testing.”

Seeing potential opportunity

However, noting that Facebook has advised marketers to target more broadly for years, Morud believes that, “Advertisers may very well see performance increase once they let go of some targeting control which we became accustomed to.” That will require a bit of patience. “Performance won’t happen overnight, marketers. The algorithm, as smart as it is — analyzing HUNDREDS of thousands of data points — requires time and attributable conversion data to learn your audience.”

JD Prater, Director of Growth Marketing at AdStage, a campaign automation and reporting platform, expects advertisers will be closely monitoring performance, but “at the end of the day, as long as Facebook continues to drive results, [it] will continue to receive healthy budgets from advertisers.”

And of course, advertisers’ own data can still be used. Arguably, Custom Audiences changed the game significantly more than the availability of data from third-party brokers.

“The direct-response targeting options that are not affected by this change, such as pixel-based retargeting, Custom Audience lists, and lookalike audiences, will continue to function well and drive performance for most advertisers,” Sahu believes. “And although the social network has recently made changes to the accessibility of this data – restricting reach estimates for custom audiences – it is still one of the best ways to drive conversions.”

While advertisers in the US have grown accustomed to third-party data in Facebook, it hasn’t been available everywhere. “Large markets like Canada had never had partner categories available and advertisers have still the ability to scale and deliver successful campaigns, so this could be a good sign for the marketplace despite this update,” said the unnamed head of social at a large agency.

Some expect advertisers will simply buy audiences directly from the data brokers and layer it onto their own data before importing it as a Custom Audience in Facebook. Others think Facebook may find alternative ways to incorporate third-party data.

“There is also the possibility that Facebook will bring these data fields in-house and begin to re-release them to advertisers,” said Sahu.

Advertisers will be looking around

What’s clear is that there are doors opening for other networks that have been held just slightly ajar until now.

“For clients who are using third-party segments, we’ve given guidance to teams to scenario plan now to identify suitable alternatives within Facebook and/ or to seek out inventory sources where top performing third-party data can still be leveraged,” the unnamed head of social said. “Whether Facebook is able to maintain levels of efficacy that beat competition and exceed points of diminishing return is to be seen as the changes are rolled out.

“If I were Twitter & LinkedIn I’d binge spend on ad product right about now…. They’re both LONG overdue,” Morud tweeted Thursday.

Snapchat and Pinterest, too, could stand to gain more consideration from advertisers.

“If the social network does not change its course on restricting third-party data or does not begin to offer comparable targeting parameters, advertisers should look to alternate channels to continue testing audience segments with awareness media,” said Sahu. “By earning website traffic through these alternate channels, Facebook can then be used to efficiently retarget visitors and drive end conversions.”

AdStage’s Prater said, “I think this update will push advertisers to be a bit more strategic in targeting and ad creatives. I also foresee advertisers starting to experiment and diversify budgets across other ad networks, but the Facebook-Google duopoly will remain in 2018.”

Facebook is already harvesting more targeting data

Facebook may be making it easier for users to see and control the data the company has about them, but it will be relying on user data that much more starting in the coming months.

“It remains to be seen how much this will have an effect on ad targeting and performance. Remember, users give Facebook a lot of information and buying signals across their networks and products (Facebook, Instagram, Messenger, and Website Pixel),” said Prater.

Facebook, of course, has long collected data from its users as they browse around the web through the ubiquitous Like button placed on millions of sites. In 2015, Facebook made that data available for ad targeting.

The anonymous director of social pointed out that while the third parties tended to have the most robust shopper and in-market behavior data, as “Facebook’s login proliferates [on] more sites, as the interactions on Facebook with content continue to grow, and Facebook’s pixel grows in adoption there is the potential for Facebook to infer with some level of accuracy many of these characteristics.”

And Morud highlighted some of the ways in which Facebook has been cultivating self-disclosed data in new ways across its platforms. One is through polls. I’ve blurred the pictures in her screenshots below.

The question is how valuable that data actually is for targeting ads.

“I think we’ll see even more rad Facebook targeting coming directly from Facebook data —perhaps other products as well like Instagram, Messenger, and Whatsapp — which is a great thing (like graduate/parents of graduate targeting *nudge, nudge* that marketers used to have),” said Morud.

When I asked Facebook if it was working on developing proxy audiences based on data it does have in lieu of the third-party data, I was told that was not in process yet.

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