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Facebook Exchange (or FBX for short) is an advertising system that will let advertisers buy Facebook ads that will be targeted to you based on your off-Facebook browsing activity. Facebook announced FBX in June.  It’s still in its experimental phase, but will be rolled out in the near future.  We discuss the biggest things you need to know about FBX.

How does Facebook Exchange change anything for me?

Previously, the ads you’d see on Facebook would be targeted based on your liked pages, the interests you put in your profile, your location, and other info that you chose to share with Facebook, on Facebook.  Now, you’ll start seeing Facebook ads based on the pages you visit and the things you click while you’re off Facebook.  Facebook has always had the ability to track users across the web through its social plugins, such as the Like button, but FBX marks the start of Facebook openly harnessing that data for advertising.

What are the top three concerns with FBX?

1.  More data collection = more worry.  FBX is another step in trying to monetize Facebook’s ability to know who you are and what you’re doing, and no one has more information about that as Facebook does.  Facebook users are already concerned about privacy; the last thing they want is Facebook gathering even more data about them.  The FBX announcement came on the heels of Facebook’s user vote on its new Data Use policy.  87% of voters opposed the new policy, which contained revisions allowing Facebook to launch FBX.  It’s important to remember that if you’re a Facebook user, you’re the product being sold.

2.  No opt-out.  There’s no way to opt out of this advertising system on Facebook.  An individual would have to do separate opt-outs for each of Facebook’s 8 demand-side platforms or use a privacy plugin like our DoNotTrackPlus software to block tracking.  Users should be able to choose whether they’re tracked, and Facebook isn’t offering them that choice.

3.  FBX is the first step in an external ad network for Facebook. Think of it like this:  FBX is uni-directional, moving from a website back to Facebook to display an ad.  Information flows only from right to left.  An ad network would be bi-directional:  displaying ads across the web based not only on browsing activity, but a user’s Facebook profile info, status updates, and posts.  Information would flow back and forth between Facebook and the rest of the web to track and target users everywhere they go, which most Internet users wouldn’t view as a positive because most of them don’t like being tracked.

Although Facebook isn’t currently combining off-Facebook advertising data with its massive database of personal info, it’s likely they will in the future.  We know that they’re the master of small changes and gradual erosion of user privacy.  Given the pressure they’re under to profit post-IPO, and given that advertising is 85% of their revenue, they’ll need to capitalize on every avenue they have.  They have a fiduciary duty to their shareholders to be as profitable as possible, and their chief asset is user data.  Launching their own external ad network will allow them to compete with Google’s.

Why should businesses and entrepreneurs be concerned about FBX?

Facebook is a behemoth.  As they expand their reach into more industries, they’re leaving less room for competition.  They’ve already gone from social network to display advertiser to ad network with FBX, and they have their sights set on becoming its members’ email, messaging, search, and phone service.  Because they’re a closed platform, there’s less room for entrepreneurs and innovation, while Google has been more open with their services.
We think that entrepreneurs should be focused on building the next big thing, not seeing how they can extract more data from their users.

How is FBX any different from the ad targeting already put into play by businesses who use ad networks’ services?

The ad retargeting process isn’t different.  The fact that Facebook is the display site is what’s different.  Facebook’s members use the site to connect with friends and family; they don’t think of it as a place where they’re hit with advertising.  And remember:  Facebook knows more about you than any other site.  They’re not just another display advertiser.  They have the personal information and the resources to launch the most targeted–and potentially invasive–ad network in history.

Does FBX violate any laws?

Not in the US, but the EU has stronger cookie laws.  Problems could arise if US companies are using FBX to target EU Facebook members, so it’s likely that FBX will be US-only at first to avoid having to comply with the cookie directive (which requires all companies who use tracking technology to receive consumer consent before tracking, give consumers access to their data and an opt-out mechanism, and only use collected data for disclosed purposes, among others).  Most of Facebook’s advertisers are American companies, though, so restricting FBX to US advertisers and Facebook members isn’t a severe limitation.

Let us know what you think about FBX and Facebook privacy in general in the comments below, and check out our PrivacyWatch email service to receive alerts each time Facebook makes any privacy changes (which, as you may have noticed, is a lot).