How An Ad Gets Placed In Your Facebook News Feed
Implementing advertisements is an important revenue source for many technology companies including Facebook. In fact, Facebook is known to have generated $2.68 billion on advertising revenue last quarter. Each day, there are between 11 and 12 million active ads on Facebook, from roughly 1.5 million advertisers running campaigns. Part of the reason for these active advertisement campaigns is because of Facebook’s abundant “real” information of the user.
Facebook has a large amount of data on each user’s information. From basic profile information including gender, age, education, and living location to a wide range of interests acquired by examining the user’s activities such as pressing a like button or commenting on a post, Facebook has more than enough information necessary for advertisers to target the audience segment. We can form a network representing the relationship between the user and his/her interests. Suppose that user is a center node, and a variety of interests (entities) are also represented in nodes. Edges will signify how relevant the interest is to the user. For example, a teenage girl following Justin Bieber’s page would have a strong edge connection with the “Justin Bieber” node, and a weak edge connection with other irrelevant entities such as the “UFC” node. Suppose that the “Justin Bieber” node has a strong edge connection with the “One Direction” node. Then, by the Strong Triadic Closure property, we can infer that the teenage girl would also be interested in One Direction. This network representation helps advertisers identify their target audience more easily.
Facebook has a unique formula determining which advertisements are placed on each user’s newsfeed. The rank of each advertisement is calculated by adding the value of the viewer and the advertiser. The value for advertisers is a combination of how much they bid for their ad as well as the probability that their ad will achieve the objective the advertiser sets for it – whether that’s a click or number of views. This formula instigates strategic decision making between advertisers and Facebook. Advertisers pay Facebook to have their advertisements on the newsfeed. The more they pay, the more likely the advertisements are going to be on the newsfeed. Advertisers can also try to improve the quality of their advertisements rather than paying extra. Facebook has two options as well. It can ask the advertisers more amount of money to have their advertisements on the newsfeed or set a higher threshold for accepting advertisements at a lower price. The Nash equilibrium in this situation would be that both sides work together to create a higher quality advertisement at a lower cost. By doing so, advertisers will be able to have their advertisements on the newsfeed at a lower cost, and Facebook will be able to help improve the user experience.
Source: http://www.buzzfeed.com/mattlynley/this-is-how-an-ad-gets-placed-in-your-facebook-news-feed#44mfuy6
Also check out http://www.rhine.io/ for the technology that enables the Strong Triadic Closure property in user-interests network example.