Facebook: Impact on Small- and Midsize Businesses in Global Digital Economy

Facebook is among a number of catalysts behind the breakdown of supply chains and the mass digitization of consumer and brand interactions – i.e., traditional supply and demand dynamics. Facebook is a driving force behind this transformation of the supply chain and the platform is particularly good at enabling small- and midsize businesses to participate in the digital global economy.

Facebook is helping small and mid-sized businesses access consumer demand in a global digital marketplace…

 

Currently, Facebook is among a number of catalysts behind the breakdown of supply chains and the mass digitization of consumer and brand interactions – i.e., traditional supply and demand dynamics.  Prior to the Internet Revolution, manufacturers teamed up with distributors and retailers to introduce products to consumers with long lead times and equally long supply chains.  Today, the internet has made distribution of all kinds – digital media content, consumer products, and ondemand services – a cheap commodity or free.  In this world, markets have increasingly become demand driven.  Consumers pull products and services that they desire immediately and advertisers aggressively target groups that fit their ideal customer profiles.

 

Facebook is a driving force behind this transformation of the supply chain and the platform is particularly good at enabling small- and midsize businesses to participate in the digital global economy.  This is a focal point of Facebook’s strategy to date, as Sheryl Sandberg, Facebook’s COO, further emphasized in the Q3 2017 earnings call: “Today, we’re announcing that Facebook has over 6 million active advertisers…the vast majority of these are small- and medium-sized businesses, which are a major source of innovation and create more than half of all new jobs globally.  These businesses often have small ad budgets, so the ability to reach people more effectively is really valuable to them.”[1]  Facebook began as a social network and has become so much more as it adapts to the changing realities of an internet-centric economy.

 

The below charts illustrate the impact on the global supply chain of the Internet Revolution.  The advent of a platform like Facebook allows consumers to indicate interest in certain products and services and for companies to respond directly to those preferences, rather than the other way around. [2]

Pre-Internet
Post-Internet

 

…and the transformative impacts of Facebook’s platform for small- and midsize businesses include targeted advertising and the ability to participate in a globalized marketplace…

 

Facebook’s platform enables small and midsize businesses with limited advertising budgets to reach customers directly and efficiently.  Businesses can target customers through business pages and audience targeting tools that can be segmented by geography, demographics, lifestyle, and purchase behavior.[3]  For instance, Pair of Thieves, an eCommerce company that sells an array of socks, shirts, and underwear, ran a highly successful 3-part holiday campaign that resulted in an 8.3x increase in online sales and a 12.2x increase in website traffic.  The 3-part campaign consisted first of identifying the best performing creative advertisement through Facebook’s analytics and serving this ad to more Facebook users, second of running Holiday specific ads on Black Friday, Cyber Monday, and Christmas, and finally of retargeting website visitors.  This campaign utilized dynamic ads, video ads, customer audiences, and lookalike audiences.[4]

 

Additionally, Facebook’s platform enables brands to expand with ease internationally and utilize the Company’s dynamic language optimization technology to advertise across 6 different languages with one advertisement.  For instance, if a business wants to advertise across the European continent they can do so cost efficiently.  Employing Facebook’s Lookalike Audience tool, businesses are able to provide a source set of customers to target and Facebook can clone those across countries and geographies.[5]  As an example, west elm, the home brand subsidiary of Williams-Sonoma expanded to the UK and targeted a UK audience most likely to buy its products.  It utilized the Lookalike Audience targeting tool resulting in 3.3x increase in website traffic, a 40% increase in purchase rate, and reached 1.6 million prospective new customers.[6]

 

…but in the future, Facebook should take a more active role in eCommerce: become a comprehensive online marketplace where brands and customers come together to solve each person’s unique preferences…

 

Today, Facebook primarily serves as a platform for advertisers to push traffic towards their dedicated eCommerce sites that are often owned and manned by individual businesses.  Expanding services that mirror marketplaces in Amazon, for instance, would put Facebook in a position to capitalize on its massive active user base and advertisers.  As the world becomes increasingly customizable, Facebook’s measurement and targeting tools can be utilized to set up a personalized mall for consumers.  Messenger can be utilized to set up customer service chats with prospective customers as they peruse product inventory.  In addition to the Facebook platform, Instagram is a perfect platform to deliver a Pinterest-esque service but with the ability to immediately purchase products.  In the future, Facebook should strive to go beyond a simple social media and targeted advertising platform to truly integrate itself as a platform that brings together businesses and consumers in an incredibly unique and targeted way.

 

…though this strategy leaves much to contemplate.

I’m interested in hearing about my classmate’s perspectives on the future of small- and midsize businesses on the platform in the future, the feasibility of a Facebook marketplace, and Amazon/Alibaba’s reaction to such a move.

 

Word Count: 800

 

Footnotes:

[1] Facebook, Inc., Q3 2017 Earnings Call, November 1, 2017.

[2] Stratechery by Ben Thomson, “Manifestos and Monopolies”, February 21, 2017.

[3] Facebook Blueprint, “Targeting the Right Audience”, https://www.facebook.com/blueprint/courses/category/targeting?ref=fbb_raise_awareness

[4] Facebook Business, Success Stories, “Pair of Theives”, https://www.facebook.com/business/success/pair-of-thieves

[5] Facebook Business, “Lookalike Audiences”, https://www.facebook.com/business/help/1589915247700182

[6] Facebook Business, Success Stories, “west elm”, https://www.facebook.com/business/success/west-elm-uk

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9 thoughts on “Facebook: Impact on Small- and Midsize Businesses in Global Digital Economy

  1. I thought this essay did a great job at capturing the role that Facebook has played in disrupting traditional advertising. The open question I would have for FB is about what happens when small- and medium-sized businesses can no longer afford to bid on the FB platform if the demand for those advertising slots begins to outpace the supply that Facebook is willing to make available. Additionally, will these smaller brands opt to participate in “one click” purchasing through FB and Instagram the way they currently do through Pinterest? I also worry about the way that Facebook could potentially start selling its data and how this could be interpreted in the media. Even if FB sold this data anonymized, there is a distinct possibility that the general population could become very uncomfortable with this and it could did-incentivize users from being as active on the website and from sharing as much personal information as they do. Were this to unfold, then Facebook would not be able to offer the same value proposition to these businesses from a targeted advertising perspective.

  2. This essay does a very good job of describing how Facebook, and all of the data and technological capabilities associated with the Facebook platform, enable companies to target consumers with specific advertising and promotions in a way that was not possible pre-internet. The essay mentions the potential for Facebook to expand the services provided and launch a marketplace, similar to Amazon, such that goods could not only be advertised, but actually sold, on the Facebook and Instagram platforms. While I think this is certainly technically/technologically feasible, and would provide a new source of revenue for the company, I wonder what impact this would have on Facebook’s brand and on its customers. I would be concerned with these potential negative externalities for two reasons. First, Facebook started as a social platform for people to keep in touch with their friends and to share personal life information (photos, status updates, etc). The Facebook/Instagram customer experience has already been changed by the degree of targeted ads and promotions on the website, and I worry that if Facebook further pushes this strategy they will ostracize their valuable customers. Second, consumer are growing increasingly wary of the amount of data that Facebook can collect and deploy for various reasons. I would worry that customers might be particularly concerned if Facebook was perceived to be using even more data to target customers and generate transactions in an even more direct fashion.

  3. Really fascinating look into how Facebook has transformed from serving only as a Page Likes + Followers platform for SMB to a true selling solution. As you mentioned, the LookAlike Audience Targeting offered to SMB accesses unparalleled amounts of personal data on consumers, providing businesses with a look into a broader customer base than any other advertising platform can offer. Of note also is that Facebook has forged unique partnerships across a variety of industries to offer even more differentiated data, one example being within Automotive. Here, Facebook partners with owners of registration data (IHS Markit/Polk) and categorizes consumers based how far they are from a car purchase, allowing dealerships to then target customers with a message that matches their intent to buy. I agree that these advertising + platform offerings could evolve further as they develop Facebook Marketplace, which was launched last October. Will this offering supplement SMB’s business needs, offering a seamless shopping experience for consumers, or will it dilute the small influence these businesses have in a shopper’s journey today?

  4. A fascinating read that is well written. An important question that this piece brings to mind is to the extent to which Facebook’s advertising efforts will impact its core product offering to consumers – a social network to connect with friends and family. Part of the value proposition that Facebook has to advertisers is the high degree of user engagement. It is imperative for Facebook to protect the strength of this engagement if the Company expects to continue increasing its value proposition to advertisers. Unfortunately, a shift in corporate focus to advertising can come at the expense of the social network, which paradoxically can in turn have negative impacts on ad revenues. Facebook will need to carefully balance its corporate resources to stay true to its original value proposition.

  5. An interesting perspective on one of Facebook’s possible modes of expansion – how does Facebook leverage its customer and advertiser relationships to get more of the “action” when the two transact with one another? I would argue that, despite its broad reach and enormous data capture, Facebook will struggle to create an Amazon-like marketplace. In particular, I believe Amazon’s widespread, owned logistics and distribution capabilities offer a substantial advantage to its customer promise, both to producers and consumers. I wonder if, instead of creating its own marketplace, there might be a fruitful collaboration between Amazon and Facebook that could embed Amazon-based functionality onto Facebook’s website, leveraging the core competencies of both businesses.

  6. Very interesting take on how Facebook, which was first developed to serve as a social platform, is transforming supply chain across all consumer goods and other industries. I think the platform is most inherently biased towards larger business that have the ability to advertise. Regarding small to mid-size companies and their reach to able to collaborate with Facebook – I believe this is almost an inevitable future. The best example is social media platforms such as snapchat or even facebook introducing the ability to send and receive money. I think the momentum is already building to be able make Facebook a marketplace.

  7. Nice article! I enjoyed the perspective on how Facebook has evolved from a straightforward social networking platform into a medium to connect goods and services with consumers in a targeted, efficient way. This “targeting” reminds me of an interesting standpoint I heard on advertising while doing a pre-MBA program at Google. I asked someone on their advertising team how they could generate so much in ad revenue through platforms like youtube, for instance, given that the consumer can easily click through (and therefore not view) the ad at all. The response was interesting; essentially, they endeavor to make the ad so effectively targeted to the consumer that he or she will actually enjoy watching the ad! We certainly live in a brave new world. In any case, will be interesting to observe how much further Facebook drifts away from the pure social media space into the world of e-commerce.

  8. You presented a very interesting view on what the future looks like for Facebook and the top-line revenue potential it presents for small- and medium-sized businesses that utilize the platform. I would challenge you to think through the implications to these small- and medium-sized businesses, as well as the global conglomerates that serve international markets. If small businesses now have access to specific consumers all over the world, can we assume that these customers will buy from small businesses? If so, are consumers and the business better off? In my view global businesses exist largely because tremendous scale is required to serve an international market. If businesses with less scale attempt to serve that market in the same way, they are likely to either lose money delivering the good to the consumer, or they will pass on the increased distribution costs to the consumer. Either way, I would question the sustainability of this supply chain. Further, I suspect that, if small businesses took significant share from large companies, the large companies would respond by acquiring the small businesses, thereby turning them into subsidiaries of large companies. Until we have a way to connect global buyers and sellers in an economically feasible way, I would question the global utility of Facebook as a platform for international small-business commerce.

  9. Gabe, your article is well written and researched! Thinking about what might be next for Facebook is an important exercise in predicting what e-commerce might look like in the next 5 years. While there is a rich and data-generating consumer base that could be easily targeted for sales, I wonder how users might respond, and if the sale of goods would cause a reduction in platform use, thereby hurting advertising revenue and reducing the growth of data-generation in the future. When we think about Amazon, we are considering a tech firm with an e-commerce platform, and when we look at Google we think about a search engine and technology product company. Google generates the majority of its revenues from adWords and flourishes under this business model. An advertising led model may be preferable since consumers who are explicitly pushed products and made aware they are being sold something might choose to disengage or use another social network.

    Even so, I think the Facebook’s capacity to implement targeted selling strategies is likely unmatched because its possession of each consumer’s social graph. A social graph is essentially a collection of a user’s activity across facebook and any of the apps/partners where users log in with their Facebook ID. This data is aggregated into the social graph, which essentially becomes a single view of the customer which can generate extremely detailed insights and lead to extremely accurate targeting behaviors for advertisers and small/medium sized businesses with relevant products to sell.

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