Here’s how Facebook becomes a multibagger

Facebook Exchange could bring in more direct marketing dollars

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How much do you trust Facebook (NYSE: FB)? Enough to let the social network show you ads based on your browsing history? A forthcoming service called Facebook Exchange proposes exactly that, TechCrunch reports.

Still in the testing phase, Facebook Exchange, or FBX as some are calling it, will use a common tactic called “retargeting,” wherein third-party sites drop a small piece of code called a cookie unto a user’s browser. FBX would then read the code and present targeted pitches to users when they return to the social network.

Think of it like this. Say you’re browsing Facebook and see that a friend is headed off to Hawaii for vacation. You leave the site and log into priceline.com to check prices to take your family on a similar trip, but after a modest amount of research, you decide not to buy.

As you leave, Priceline drops a cookie unto your browser and then bids for the right to show you an ad via FBX. The next time you log into Facebook, you see a display ad pitching fares you might have missed.

We don’t yet have a firm timetable for when FBX will go live. Nor do we know exactly what privacy controls users will be granted to users in working with the system. Still, if handled well, FBX could be a huge step forward in competing with Google (Nasdaq: GOOG).

Up until now, advertisers have looked at the two companies differently. Google has done well catering to direct marketers because of the precise nature of connecting keywords to Web searches. Facebook has done well pitching itself as a brand-advertising platform, where promoted pages pull in fans and increase engagement in the digital realm.

Facebook Exchange could bring in more direct marketing dollars — especially if the plan includes tying into an existing search partnership with Microsoft‘s (Nasdaq: MSFT) Bing — while preserving the social network’s stature as a platform for brand building.

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A version of this article, written by Tim Beyers, originally appeared on fool.com

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