June 14 (Bloomberg) -- Facebook Inc. plans to introduce real-time bidding for advertising on its site, a technology used by Google Inc. and other Web companies to more effectively target ads to consumers.
The service, Facebook Exchange, will let advertisers reach specific types of users on the social network based on their browsing history, Annie Ta, a company spokeswoman, said in an interview yesterday. Prices will be based on the cost per thousand viewers and spots will be sold via third-party technology partners. It will debut within weeks, she said.
Facebook, operator of the world's largest social network, has tumbled 26 percent since its stock market debut last month, a decline caused in part by concern that ad revenue growth isn't keeping pace with surging membership. The Menlo Park, California-based company, with more than 900 million users worldwide, brought in $3.15 billion from advertising last year and has introduced mobile ads and other services to boost sales.
"Facebook's been having challenges coming up with effective advertising," said Debra Aho Williamson, an analyst at New York-based EMarketer Inc. The company "is hoping to use that inventory on the right side of the page to deliver advertising that is more targeted," she said.
With Facebook Exchange, marketers will be able to target people who have perused certain kinds of websites in the past based on cookies, or small pieces of code, that can track activities on the Web. For example, users who have visited travel sites to research trips to Hawaii may later see a promotion on Facebook about hotels in Hawaii.
An increasing portion of display ad sales are driven by this type of technology. Real-time bidding will account for about $5.08 billion, or 27 percent, of the projected $18.9 billion to be spent on U.S. online display ads in 2015, according to researcher IDC. Last year, real-time bids generated $1.07 billion, or 9.8 percent, of display ad sales.
Facebook's shares rose 3.7 percent to $28.29 at the close in New York, for the biggest gain in two weeks. The stock began trading at $38 on May 18.
The company's technology partners for selling ads based on user browsing patterns include TellApart Inc., Turn Inc., Triggit, DataXu Inc., MediaMath Inc., AppNexus Inc., The Trade Desk Inc. and AdRoll.com, Ta said.
Facebook has started placing cookies on the Internet browsers of its members, which will be used by its partners to identify members of the social network, Ta said. While there isn't a way to opt out of this tracking on Facebook's site, the outside vendors will give users an opportunity to block cookies.
The new bidding process is designed to help advertisers deliver more time-sensitive messages. For example, if a sports- apparel company wanted to reach fans on Facebook in the moments after the last game of the NBA Finals, they could prepare ads that highlight the Miami Heat and the Oklahoma City Thunder and choose which one to run depending on the outcome of the game.
Advertisers now target users on Facebook based on the interests they list in their profiles and the pages they "like" on the site. The company will continue to offer these ads, and such interests won't be used as part of the real-time bidding exchange, Ta said.
As its stock declines amid concerns about sales growth, Facebook has been working to show advertisers that its website is an effective way to reach customers.
Earlier this week, the company and researcher ComScore Inc. said in a joint report that ads on the social network encourage users to buy products in stores and online. Users who saw unpaid marketing messages on the social network about Starbucks Corp. bought an item at the coffee chain within four weeks 38 percent more often than those who didn't, said Andrew Lipsman, vice president of industry analysis at ComScore.
In a separate study last week, a Reuters/Ipsos poll showed a minority of users being influenced by ads. Just 1 in 5 people on Facebook have bought products because of advertising or comments they saw on the site, that poll found.