Since its founding in 2004, Facebook’s (NASDAQ:FB) Mark Zuckerberg has tried to minimize advertising on the site. He didn’t want ads to ruin the user experience. But with the company now public, might he be changing his tack? Perhaps so. Take a look at Facebook’s new ad system — called Facebook Exchange.
The system will allow for real-time bidding on advertising based on user activity on other sites. For example, suppose you visit Priceline.com (NASDAQ:PCLN) but don’t buy any tickets. When you come to Facebook, you’ll see an ad from the company. And yes, it will likely be targeted to your behavior.
In light of Facebook’s huge scale, the new advertising system should get lots of traction. After all, Google (NASDAQ:GOOG) has built a massive business with this approach.
To pull this off, Facebook will need to drop cookies on users’ computers that track the sites they visit, which is something Zuckerberg has had an aversion to. But hey, if he wants to boost the stock’s valuation, he’ll need to back off his stubborn philosophies.
Still, Facebook Exchange won’t do much to deal with the problems of mobile. As I indicated in “Facebook’s Mobile Nightmare Far From Over,” the market is still in the early stages, and monetization is likely to be small — that is, until advertisers start to understand the nuances.
So, for the next couple quarters — if not more — Facebook’s ad business is likely to see a continued slowdown, and it will unfortunately be a drag on the stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.