Is Facebook Dynamic Ads a threat to Criteo?

Investment Analysis Clubs Saul’s Investing Discussions
1

Hi all,

Saul asked me about my opinion regarding the competitive threat to Criteo from the likes of Google/Facebook. I have done some digging around Facebook’s recent Dynamic Ads offering, and most of this post describes what I found and what I think about this, vis a vis Criteo’s positioning.

Dynamic Ads are Facebook’s re-targeting/re-marketing offering. Below is the service description from Facebook’s guide to developers:
Dynamic Ads allow advertisers to create Link or multi-product ads that are rendered and targeted based on a set of products. The ads are rendered based on a template and filled in by product metadata. They are targeted based upon a set of actions that a person has taken on that product or product group.
https://developers.facebook.com/docs/marketing-api/dynamic-p…

Also, have a look at the Dynamic Ads page from Facebook:
https://www.facebook.com/business/a/online-sales/dynamic-pro…

This page offers a step by step guide, describing how one can go about setting up these re-targeting ads on Facebook. So, looking at this, we could quickly come to the conclusion that Facebook is going to be a serious threat to the competitive advantage of companies like Criteo. My opinion, however, is that I think that would be a misplaced conclusions, for at least several reasons:

  1. Dynamic ads offering from Facebook only offers ad placement on Facebook. While Facebook’s ad business is growing rapidly, and it is indeed one of the most visited services today, it is NOT the only place where we see ads. There’s gazillion useful ad inventory around the web, and a company like Criteo can buy ad slots across the Web and then determine the best place for inserting a client’s ad. We need to remember that Criteo works with over 10,000 publishers.

  2. The way Facebook has setup this dynamic ads program, it looks like they are targeting the small businesses that would like to sell targeted ads on Facebook. Small business are a major contributor Facebook’s ad revenues, and that makes sense for a platform like Facebook.

Facebook has put up a pretty clean description for setting up dynamic ads. What happens if a business needs help to setup the ad? What about businesses that need to come up with a strategy for optimising ad spend across various ad placement opportunities (how much on Facebook, how much on WSJ etc)? Facebook isn’t looking to address any of these things, and that makes sense. Facebook just wants to provide better ads on its platform.

So, if you need help with setting ads, Facebook says ‘Contact one of our vetted marketing partners’:
https://facebookmarketingpartners.com/marketing-partners/

Criteo is one of Facebook’s marketing partners.
https://facebookmarketingpartners.com/marketing-partners/cri…

All this makes sense. Facebook is offering the opportunity for better targeting, and if someone wants to setup an ad campaign, they can go to Criteo to help manage this ad campaign. Criteo has tons of data, which is not limited to Facebook, and it can use this treasure trove to make intelligent ad placement decisions.

To me, this appears like a nice opportunity for Criteo.

  1. Criteo had a press release about it working with Facebook’s dynamic ads offering.

Criteo (NASDAQ: CRTO), the performance marketing technology company, today announced its extended mobile capabilities as a result of Facebook’s new dynamic product ads. As users shift from desktops to mobile devices, Criteo’s advertisers are now able to complement their Facebook Exchange marketing efforts by reaching consumers using Facebook on their phones.

With dynamic product ads, Criteo is now able to leverage its powerful Criteo Engine to deliver recommendations and smart bidding campaigns across every device that consumers use to access Facebook, which includes smartphone, tablet, and desktop.

Overall, I believe the Facebook Dynamic Ads Program is a nice opportunity for Criteo, and not a threat.

Anirban

21 Likes
2

I don’t pretend to understand the fine points of Criteo’s technology as well as Anirban does. But here’s the way I see it.

I sure that Criteo has some pretty sophisticated software under the hood. I’ve not looked into it, but it would greatly surprise me to find out that they relied on patent/copyright protection because those vehicles are tell-all documents. I’m sure they rely on trade secrets.

But given that, there’s nothing stopping a competitor from hiring a sharp bunch of programmers like EPAM and pretty much replicating the functionality. The technology is not what gives them competitive advantage. It’s their database. They have captured more user specific behavior than any of their competitors and they have organized it in such a way that it can be used to inform the effective placement of advertising. Because of this, they have a growing customer and publisher base which in turn provides a virtuous circle of increasing the database.

IMO, this provides an unassailable moat which continues to grow in breadth and depth. At 14.5% CRTO is my largest holding. I see no reason to sell.

5 Likes
3

Dynamic ads offering from Facebook only offers ad placement on Facebook. While Facebook’s ad business is growing rapidly, and it is indeed one of the most visited services today, it is NOT the only place where we see ads. There’s gazillion useful ad inventory around the web, and a company like Criteo can buy ad slots across the Web and then determine the best place for inserting a client’s ad. We need to remember that Criteo works with over 10,000 publishers.

Someone mentioned this on CRTO’s Stock Advisor Board, so I did a little sleuthing to see what I could find. Facebook’s Atlas is an advertising platform that offers ad placement outside of Facebook. It appears to be targeted mostly for mobile apps and devices but can be used for websites as well. Facebook purchased Atlas from Microsoft in 2013. From a USA Today article last fall:

Facebook is going to sell ads targeted to its 1.3 billion users when they are elsewhere on the Web in its most direct challenge to Google yet.

?On Monday, Facebook is rolling out an updated version of Atlas that will direct ads to people on websites and mobile apps.

Atlas could create a new revenue source for Facebook and a valuable tool for marketers looking for an alternative to ad networks run by Google and Yahoo.

It could show the most promise on mobile devices where cookies and other tracking devices don’t work as well.

http://www.usatoday.com/story/tech/2014/09/29/facebook-atlas…

Now the Omnicom Group, a global advertising behemoth, was one of the first customers to sign up for Facebook Atlas, so I’m still not sure if this program is a direct competitor to CRTO or not. Like Omnicom, it is possible that a firm could hire CRTO to manage its ad campaign on Facebook’s platform - I think. Somebody should check that though as I couldn’t really find a definitive answer while poking around.

I just wanted people to be aware that Facebook is targeting ads outside of the Facebook mothership now.

  • Matt
6 Likes
4

As Wolfgang the German soldier (on laugh-in) would say; "verrrry interesting’.

https://www.youtube.com/watch?v=krD4hdGvGHM

Great thought provoking posts on CRTO!

Key points that stick out:

*Criteo works with over 10,000 publishers
*The technology is not what gives them competitive advantage. It’s their database.
*Facebook is going to sell ads targeted to its 1.3 billion users
*Criteo is one of Facebook’s marketing partners

On the surface FB and CRTO are positioned to be winners. CRTO is 7.35% of my portfolio while FB is 3.02%.

With some more study on my part … may be increasing FB.
Long CRTO

Again, excellant stuff on this board folks!

Mark

1 Like