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Our view: Is Facebook good for small businesses?

At their Worldwide Developers Conference this year Apple announced several new privacy updates for IOS. One of the most notable of these was a feature called App Tracking Transparency; this would require people to opt in to apps collecting their data rather than the current opt out system.

The privacy focused feature brought about criticism from the Tolkein-esque data hoarding dragon that is Facebook. Facebook feels this change to grant autonomy over data decisions to individuals will have major repercussions throughout the small business world. Their argument (which they posted in ads in the Wall Street Journal, and others) is that it will limit business’ ability to run personalised ads and reach their customers effectively. This would mean that privacy has a toll on small businesses and the people who tirelessly work on and own these brands.

There are many problems with Facebook’s argument, but there is one question in particular that we wanted to answer:

🤔 Is there evidence that Facebook advertising has led to increased performance in small businesses?

🤔 Is this argument even valid?

Facebook and the advertising industry

There is no doubt that Facebook’s advertising platform has had a colossal impact on the advertising industry. As shown below, we can see that internet advertising has taken on a huge share of the market in a comparatively short time. This is whilst overall spend on advertising and marketing has decreased.

Facebook’s ad platform launched in 2007 - and we can see that online advertising significantly grew from the end of the 00s. That reduction in ad spend probably has more to do with the 2008 financial crash than it does Facebook’s 2007 Ad Platform launch. But the below graph shows just how much of a monopoly they have in internet ad spend.

Anecdotally too, we know how much small businesses and digital marketers rely on Facebook advertising for direct conversion. It is almost impossible for any consumer brand to not have a presence on Instagram. It’s not just that Facebook has a monopoly on digital ad spend, but that it is very difficult for any small brand to grow a business WITHOUT using Facebook. This would be quite an asymmetric relationship if small businesses weren’t seeing tangible growth post 2008 compared to before. Instead of helping businesses, Facebook might be a parasite on them. Which leads us onto our next point of enquiry.

Has internet advertising favourably impacted small business?

If this change in how advertising is done has been so beneficial to small businesses then we should be able to track a reasonable change in the number of small businesses that have benefitted from Facebook ads. The chart below shows that profitability of organisations with 0 - 50 employees is largely inline with that of the larger ones between 2012 and 2019. Facebook has also increased the number of ads served on its platforms by a quarterly average of nearly 30% year on year since the third quarter of 2015. But neither this nor the fact that the entire ad spend market has decreased seems to have any major benefits on smaller organisations.

Data around revenue, revenue generated per employee and the number of businesses also shows no significant outliers and even large organisations (250+ employees) track similarly to the smaller ones.

If Facebook’s current marketing platform was so instrumental to small businesses success you would see a noticeable increase in SMEs profitability, revenue or an increase in the number of small businesses relative to larger businesses. This isn’t the case.

We know that this blog post doesn’t prove the point that Facebook is a parasitic influence on small business growth - but rather, a preliminary look at the data shows they could be. For small businesses Facebook does hold a monopoly on the current marketplace for interest based marketing options. It’s perfectly reasonable to see how a world without Facebook marketing could be daunting to a lot of small businesses. However that isn’t what Apple’s updates threatens. At worst it threatens a reduction in the amount of data Facebook is able to capture from their users which may increase the cost of their interest based marketing platform, bringing it more inline with the costs of its competition. At Hattusia we know all too well how difficult it is to find competitive marketing options outside of Facebook’s ad platform. We’ve made a statement to actively avoid giving money to Facebook as so much of the harm it does conflicts with our political and moral values. We’re actively trying to find different options for small businesses (and indeed large ones) so that we can pass this knowledge onto others. If more small businesses were encouraged to look outside of Facebook for their marketing options, maybe even towards platforms that weren’t actively involved in genocide, for this small business at least that would be a good thing.

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