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Now With 2 Million Advertisers, Facebook Is Gaining a Foothold With Small Businesses

It's added a half million paying brands in the past year

Facebook has a new ad manager app for its 2 million advertisers.

Facebook now has 2 million advertisers, a milestone CEO Mark Zuckerberg announced today in a video post on the social network. Zuckerberg and COO Sheryl Sandberg thanked small-and-medium-sized businesses (SMBs) and entrepreneurs for jumping on board with the platform, helping it attract 500,000 new advertisers in the last year.

"Millions of businesses like yours are using Facebook to connect with their customers and reach the world," Sandberg remarked in the clip.

Just a few years ago, Facebook was an unknown quantity when it came to local advertising for SMBs—the platform was perceived to be more for direct e-commerce players and big brands. That small-business challenge appears to have been met.

"What does stand out here is that Facebook is making it easier to advertise, particularly for small- and medium-sized businesses," said Rebecca Lieb, a Facebook analyst. "Much like search engines developed tools 10 years ago to serve targeted ads, Facebook is doing the same and removing a lot of friction for these businesses."

Reaching 2 million advertisers is yet another indication of Facebook's growing dominance in digital, getting more businesses to market to its 1.4 billion users. The social network is changing the face of digital advertising much the way search redefined the marketplace more than 10 years ago, according to Lieb and other industry watchers.

Today, Facebook also launched a mobile app to help businesses manage marketing campaigns. And it's these types of "turn-key" products for small businesses, which are often less socially savvy, that are making it possible to advertise on Facebook, Lieb said.

"Targeting, segmenting, day-parting—this is not their core competency," she said, referring to the thousands of small businesses that have to learn a whole new marketing language for the social network. "Facebook has to go into local markets and show them this is how you as local advertisers leverage the platform."

The fact is that to reach fans on Facebook, big brands and small businesses have to pay for promoted posts. There is no such thing as free reach, according to Jordan Kretchmer, CEO of social marketing software firm Livefyre.

"Facebook has become one of the best paid media channels out there," Kretchmer said. The social network is developing the ads, the networks, the tools and data collection capabilities that hold promise for marketers to reach consumers in the most targeted way possible, online and via mobile devices.

However, its total control also creates the risk that businesses will become overly reliant on Facebook to reach audiences.

Big brands have already reacted to Facebook's dominance by investing in their own data and audiences, like Taco Bell building an app last year to own access to its user base, Kretchmer said. "If Facebook changes something tomorrow, these brands can jump away from it and not miss a beat," he said. "Small businesses are at a disadvantage. They are beholden to pay Facebook to drive traffic."

Last quarter, Facebook ad revenue was $3.6 billion, an increase of almost 60 percent year over year. It is the No. 2 digital ad business, still far behind Google, but comfortably ahead of companies like Twitter and Yahoo.

Of course, it also has rivals like Snapchat, coming up today much like Facebook was 10 years ago. That's why Facebook bought Instagram and WhatsApp, which have more than a billion users combined.

"Marketers flock to media that collects the most users, that's just how it is," said Nate Elliott, a Forrester researcher. So Facebook's size is drawing the biggest brands, which are having the most success at the moment marketing there, he said.

The large companies have the advantage because they have their own data, and Facebook can be stingy when it comes to sharing its data.

"It's perverse. Facebook knows more about customers than anyone ever, yet marketers are forced to bring their own data to the party," Elliott said.

Marketing experts said the data question is the next one Facebook has to address with small businesses. Kretchmer said companies like his Livefyre are developing ad-targeting and data tools that have only been accessible to large brands so far.

"Getting to relevancy is more difficult for smaller businesses than larger ones," said Debra Aho Williamson, eMarketer's principal analyst. "For one thing, they don't tend to come into Facebook with their own large data sets, as do many of the larger companies that advertise on Facebook. This presents an opportunity for Facebook to educate small businesses about the best way to create and target ads to achieve relevancy."

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