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When you are creating an ad on Facebook, you are provided with a "suggested bid" range (e.g., $0.90 - $2.15 USD). According to this page:

The suggested bid range is there to help you pick a maximum bid so your ad will be successful. It’s based on how many other advertisers are competing to show their ad to the same audience as you are.

I'm interested in understanding what's actually going on (technically) under the hood here.

Say a user logs into Facebook. On the server-side, it the HTTP request that the user's browser sent (as part of the login) is handled, and the server needs to figure out which ad to display back to the user.

I assume this is where the "bidding" system comes into play? Say that, based on this user's demographics, and based on the audience targeting that several competing advertisers designed their campaign with, let's pretend that Facebook sees a pool of 20 different ads it could return.

How does this bidding system help Facebook determine which of the 20 ads it returns to the client-side? I'm guessing that advertisers who "bid more" get prioritized over those who "bid less". But when does this bidding take place? How often does an advertiser need to re-bid? How long is a bid binding for?

Once I understand these usage-related concepts behind ads, it will probably be obvious between which of the following "selection strategies" the backend is using:

  • Round robin
  • Prioritized round robin
  • Randomized (doubtful)
  • History-based
  • MVP-based

Thanks to anyone who can help point me in the right direction and explain what these suggested bid systems are and how they work.

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It's unlikely that this question is answerable unless an expert from Facebook stumbles over the question, and even then any answer he gives is unlikely to be probative, due to trade secrets, etc. –  ChrisF Sep 8 '12 at 10:21
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I'm sure it doesn't take an employee from Facebook to at least explain what the suggested bidding system is and what it is used for... –  herpylderp Sep 8 '12 at 10:51
    
If that't the thrust of question then can you make it clearer please. In it's current form it's confused several people (me included) –  ChrisF Sep 8 '12 at 10:59
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2 Answers

up vote 3 down vote accepted

I agree with ChrisF. Your not going to get a definitive answer short of having someone from facebook answer it. If I was them them, I would base the bid off these factors:

  1. Vertical

    • What are industry averages for this category. You could use a tool like Google's Keyword
      Tool to find out
  2. Popularity

    • What ratio of relavent content, to advertisers is there? If the niche is extremely popular and rich with content and advertisers, I would put the minimum bid a little higher than the lowest advertisers bid.
  3. CTR

    • This is a big one with Google. If you have an awesome click through rate, you can be in positions 1,2 or 3 with a lower price per click than the positions below you. I'm sure Facebook takes this into consideration.
  4. Daily budget

    • Someone who has a smaller daily budget would have to pay more per click than someone with a larger budget

These where just a couple ideas to consider. I'm sure there are many more factors to consider.

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This link doesn't directly answer your question, but it may point you in the right direction for additional search terms. Facebook FBX

With re-selling, they'll have to move to a prioritized round-robin type approach filtered by indicators mined from cookies. Otherwise I think they'll have a difficult time getting continued sales into the reseller market.

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