META Meta Platforms Inc

By Mike Shields 

Facebook is planning to shut down its ad exchange, FBX, which enables third party ad technology companies to purchase ads on the social network.

The company confirmed the move to CMO Today on Wednesday.

Officials from Facebook began alerting a group of FBX partners earlier this week that the exchange product would be shuttered by November.

Ad tech companies such as Criteo, DataXu, MediaMath and AppNexus have been buying ads on behalf of marketers through the ad exchange over the past few years.

In ad tech circles, this move is hardly a surprise. Facebook had pared down the number of partners eligible to buy ads via FBX in early 2015 and lately appears to have shifted its focus to its own Audience Network, which lets marketers buy ads across the Web using Facebook's data--through direct deals with Facebook.

Third party vendors can still purchase ads on Facebook through the company's "application programming interface." This allows a wide number of companies to advertise on Facebook, ranging from e-commerce firms to small local businesses to mobile game developers via an automated set of digital tools, for example.

Most FBX partners work with other exchanges and were not necessarily reliant on Facebook ad inventory, said people familiar with the matter.

The ad inventory available through the FBX product was limited to space desktop computers, such as display ads that appear along the right side of Facebook's home page. FBX did not feature mobile or video ads. And mobile now makes up the bulk of Facebook's traffic and revenue.

"Mobile is now a necessary component of effective marketing campaigns, and Facebook is helping millions of businesses understand their customers' purchase path across devices," said Matt Idema, vice president of monetization product marketing. "Dynamic Ads and Custom Audiences have mobile at their core and are delivering excellent results for businesses, so Facebook Exchange spending has shifted towards those solutions."

Facebook has been beefing up its Audience Network, and recently started selling video ads through the platform. The company said fourth-quarter 2015 sales on the Audience Network suggested an annualized run rate of $1 billion. (Facebook's advertising revenue last year was over $17 billion.)

In general, Facebook has been asserting more control over its ad offerings of late, while tweaking some of its ad technology offerings.

For example, Facebook recently scaled back some of its video ad-serving capabilities. (In 2014 Facebook had acquired the video ad tech firm Liverail, which had helped deliver video ads to multiple outlets).

And Facebook's display ad-focused ad product Atlas--at one point a major competitor to Google's leading ad serving tool--has struggled to gain traction among among top marketers and ad agencies, according to AdExchanger.

Meanwhile, Facebook has found itself becoming even more central to both the media distribution business and the digital advertising industry, perhaps making FBX less important to its future.

"Facebook is becoming more of a closed ecosystem, something we expected, " said Greg Williams, MediaMath co-founder. "It allows Facebook to control their own platform by maintaining the ability to make the last-mile decisions on behalf of advertisers."

Antonio Garcia-Martinez, a former Facebook product manager who helped build FBX, said that the exchange was hatched around the time Facebook was going public and the company was "desperate to boost revenue."

"People interpreted this as a massive move into programmatic," he added. "But they hated any idea of outside bidders have access and control [of Facebook ads]. Facebook always want to have everything owned and operated."

Now that mobile advertising on Facebook has exploded, FBX may have simply outlived its usefulness, said Mr. Garcia-Martinez, who is publishing a book on Silicon Valley next month. "Facebook is sitting high on the hog."

Write to Mike Shields at mike.shields@wsj.com

(END) Dow Jones Newswires

May 25, 2016 14:25 ET (18:25 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.