In September 2012 Facebook announced a new targeting option called "Custom Audiences," which it mentioned in its earnings release but which not enough marketers and very few Wall Street analysts appear to understand. It lets marketers target their existing customers by doing a match with hashed versions of their opt-in email addresses. "Hashing" allows one to provide an encoded version of the email address that's easy to match against when someone else is using the same hashing function, but it's difficult to unencode to get the initial email address. To get started, one simply uploads the hashed list(s) via a Facebook Ads API partner or Facebook's Power Editor.
The Opportunity: As most marketers know, emailing customers or prospects has a high opportunity cost -- a non-relevant email will either get consigned to the spam bin or worse, the user clicks the 'unsubscribe' button. Custom Audiences instead allows marketers to show a more relevant Facebook ad to a customer, in a spot they would have seen another ad anyway. And just as with email, creating multiple sub-segments of the user base allows targeted offer delivery to specific groups instead of a "one size fits all" message.
The Confusion: Facebook launched a lot of new ad products in 2012, and with it came the usual confusion that comes from groundbreaking new advances. Custom Audiences launched around the same time as the Facebook Exchange (FBX), with much less press and fanfare, and it is thus unsurprising that many advertisers might have missed this product or are confused about how it works. In the earnings transcript, Sheryl Sandberg said "We frequently see a match rate over 50 percent and sometimes as high as 95 percent, which we believe to be much higher than industry norms." No serious marketer should enter 2013 without knowing about Custom Audiences.
Facebook Exchange (FBX) vs. Custom Audiences: FBX is cookie-based retargeting -- the advertiser places a pixel from one of Facebook's FBX partners on a website, Facebook alerts the partner that a cookied user is about to see an ad. The partner then bids for that impression. If they win the impression, they track the amount paid for the ad. Not that different from Google's AdX exchange (except for more price transparency since it is visible in the marketer's own Facebook ad account) -- but there's no ability to combine this targeting with any of Facebook's targeting, nor the ability to access anything other than desktop "right-rail" Facebook marketplace ad inventory.
Custom Audiences, however, creates a segment in the marketer's Facebook ads account that works like "Broad Category" targeting: a target "bucket" that can be combined with other targeting to hone in on a specific defined group. What's powerful about Custom Audiences (that is currently unavailable with FBX) is that (1) the marketer can combine its first-party targeting with any other Facebook targeting and (2) the marketer can harness any and all of Facebook's native ad types! They could, for example, show ads to only their female customers, or those that are not yet fans of their Facebook page, etc. And they can therefore enable...
Instant mobile ads to existing customers: The advertiser can upload their hashed email list and create an ad campaign to show to Facebook's mobile newsfeed only, likely in less than an hour. Mobile newsfeed ads have very high response rates, and no longer need to be Sponsored Stories only, as they were initially. Marketers can now promote a page post ad that includes a large photo, text and a link that could take up the full screen on a mobile device on a cost per click basis. Mobile advertising on Facebook has scale, high response rates and very importantly, instant relevance for marketers since they can microtarget existing customers instantly. Of course Facebook ad creation is simple too -- no weirdly-sized image banners to have a designer create.
For retailers reactivating past purchasers, financial services companies trying to turn (actual) customers into fans (like this case study for a large financial services company), or publishers getting high-value users to install their branded iOS or Android apps (and also combining device- or mobile OS-specific targeting), the Facebook Custom Audiences plus mobile combination will no doubt be a very important way for many marketers to start communicating their their existing customers on mobile in 2013.