Facebook's new FBX ad exchange could be "marginalized dramatically" — and the web ad exchange business generally could be destroyed — if Microsoft succeeds in persuading the browser industry that its default "Do Not Track" is the way to go, two senior ad execs told me recently.
Real-time bidding on ad exchanges that target people via cookies is currently a $2 billion business, according to Bloomberg. Facebook, via FBX, is expected to eventually capture a $1 billion slice of the market.
But all of that could whither out of existence if Microsoft gets its way, these men say.
Eric Wheeler, CEO of social ad targeting company 33Across, and Jason Bier, chief privacy officer of ValueClick, both told me they regard IE10 and its default DNT position as a fundamental threat to FBX and the online ad business generally.
If a default DNT position were also to become adopted within Mozilla's Firefox and Google's Chrome browsers, then any company that relied on cookies serving data collected from other web sites — so called "third-party data" — could go out of business. (They both, obviously, run businesses that rely on targeting users with cookies.)
Those companies include some of the biggest players in web advertising, such as WPP's Xaxis and iBehavior units, the retargeting firm Turn, digital media buyer Media Math, and AppNexus, which is one of about a dozen other buyers within the Facebook Exchange. Even measurement companies like ComScore could take a hit because cookies are used to verify whether ads are delivered or not.
That's particularly ironic for AppNexus given that Microsoft is one of its investors and AppNexus runs an ad exchange with Microsoft, AOL, and Yahoo! With millions of people using IE10 with tracking turned off, AppNexus can't get any benefit from the cookies those users collect as they surf the web. With no cookie data, there is no ability to target them accurately — and AppNexus (along with the rest of the exchange business) is suddenly in real trouble, Wheeler and Bier say.
"AppNexus's exchange loves third-party data in every way," Wheeler says.
We asked AppNexus CEO Brian O'Kelley for comment, but a spokesperson told us "I don't think this is an area in which Brian has a lot to share."
Ad exchanges are used more heavily by small businesses than by large media publishers, like The New York Times. Exchanges allow publishers to sell ads automatically without the need for a sales force. Large publishers prefer to sell directly to clients, offering their sites at a premium.
"I'm quite scared for small businesses out there," says Bier. "They're going to get destroyed. Facebook will survive this. Small businesses won't."
Internet Explorer has about one third market share among all browsers. Bier fears that if DNT or private browsing in Explorer, Firefox, and Chrome spreads beyond a 31% threshold, "that's beyond the survivability rate for some networks out there. The model will not survive. It's a real threat." (On some devices, 19 percent of Firefox users are already in private browsing mode.)
Wheeler agreed. "It's a big problem that's been grossly underestimated by everyone," he says.
One of the main misunderstandings, Wheeler says, is how, exactly, users are identified as they are tracked. Advertising cookies contain no "personal identifying information," as they identify you only as an anonymous number. The targeting information carried by the cookie pertains only to your browsing history and your potential interests: If you look at a Ford web page, for instance, you're likely to start seeing Ford ads triggered elsewhere on the web. But Ford and its buying agency don't actually know who you are, merely that you're behaving like someone shopping for a car.
