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Facebook’s Newest Custom Audiences LTV Lookalikes Capability

5 MINUTE READ | July 24, 2017

Facebook’s Newest Custom Audiences LTV Lookalikes Capability

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Austin Denny

Austin Denny has written this article. More details coming soon.

A few weeks ago, Facebook quietly introduced a new capability within Custom Audiences from Customer Lists, lifetime-value-based lookalikes. I won’t be going into detail on how to use LTV audiences—rather, I think it’s important to consider what this tells us about the direction of digital media. But if you’re interested in learning how to use this new capability, here are some resources to help you get started:

My guess is that the rollout was kept somewhat under the radar because of an underlying assumption that advertisers just won’t use the feature that extensively. I think that for two reasons. First, calculating lifetime value accurately and consistently across an entire organization’s varying customer databases can be really difficult. Second, there’s such a vast gray area between a brands’ customer data and Facebook’s targeting capabilities that leveraging such insights can sometimes be even more complicated.

With those challenges in mind, the announcement was understandably underwhelming, but I find that to be irrelevant in the broader framework of digital media. Despite the incremental nature of lifetime-value-based lookalikes—I mean, all it does is allow advertisers to upload a single number alongside customer emails—the idea behind it is powerful.

Let’s think for a minute about Facebook’s overall goal for digital advertising in the near future and how it’s aligning its interests with those of advertisers. There’s no question that almost all growth in the market is attributable to either Facebook or Google, and that’s, of course, a trend that both companies want to see continue, notwithstanding each party’s desire to capture a larger share of the overall market.

However, exponential growth isn’t necessarily compatible with long-term viability, especially for Facebook. And it all ties back to the user experience. Ben Thompson introduced the idea of ‘Aggregation Theory’ on his blog, Stratechery, the thesis of which being that horizontal monopolies between customers, distribution, and suppliers in the tech industry can be beneficial to end users. That is, as companies consolidate ownership of a user base, their services inherently improve, a process that drives even greater adoption.

Ben calls this a virtuous cycle. It implies an intrinsically different model from industrial monopolies that only controlled one aspect of business, either distribution or supply. Think about utility monopolies. That’s control over distribution. Or, think about Monsanto controlling the supply of seeds and chemicals. Neither of those monopolies result in a great customer experience, but we tolerate them because there’s no other option.

In technology, there’s always another option. So, monopolies can only begin to form if they provide the best experience and continue to improve that experience as growing adoption allows. With this in mind, we can come back to what something as simple as lifetime-value-based lookalikes really means for Facebook, and what it tells us about our future as marketers making extensive use of Facebook as a medium for interacting with our customers.

A certain level of symbiosis between user and platform is required for both Google and Facebook to survive and grow. Because both offer free services and derive revenue from ad sales, their ability to scale the breadth of their services is their single biggest limiting factor in terms of top-line growth.

Naturally, Google offers a much more diverse view of online activity and the ability to reach people more organically as their services permeate more aspects of digital life. Despite their numerous acquisitions, we know the scope of Facebook is more limited. If Facebook were to approach growth through simply expanding inventory or frequency, it would cause significant damage to their user experience.

Thus, Facebook is compelled to compete with Google in ad sales growth by diversifying its audience targeting capabilities. Facebook doesn’t stray from its core competency, social networking, in the ways that Google does. Since Facebook can’t just introduce new ad formats on new platforms to drive growth, it has to do a better job of blurring the line between sponsored content and user content. The only way to accomplish this is to make ads more relevant and feel more native.

Facebook’s advertising capability advancements must serve double duty – they have to generate more profit to compensate for breadth, but more importantly, must also improve the user experience. Lifetime-value-based lookalikes represent an improved user experience for both advertisers and end users. And while I don’t expect that it will be widely adopted initially, it answers part of the big question we’re asking at PMG.

This isn’t the first move from Facebook to lead in terms of offering the most integrated audience targeting options. Past indicators include the ability to layer pixel-based targeting on top of customer lists and matching list uploads to users based on multiple PII keys. The trend I see is that these releases are increasing in velocity, and, soon, we’ll reach a confluence at which marketers have the option to truly personalize ads, but perhaps lack the internal ability to do so.

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My recommendation is to invest the resources and time to take advantage of these capabilities as they are introduced now. Getting up to speed can take months or years in some cases, but brands that put forth the effort now will be well-positioned to compete digitally over the next several years.