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Facebook Is About to Use Your Smartphone to Dominate Retail Advertising

By John-Erik Koslosky - Jun 27, 2016 at 12:01PM

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The social network is unveiling new features that should help win over advertisers and further tap the small-business market.

IMAGE SOURCE: FACEBOOK. 

Facebook ( FB -1.14% ) is bringing some new weapons to the fight to win over retail advertisers, and these are going to be tough for many competitors to defend against.

The social network is rolling out a new feature that will be able to tell stores how many people who saw their ads visited the stores afterwards -- and even how many of those people made purchases.

These new tools are the latest offering from Facebook for retailers looking to capitalize on shoppers who use their smartphones to help them find stores, research products, and look for deals.

Today, people use mobile in nearly half of all shopping excursions, according to the social network. And that number should only grow over time.

These are important moves for Facebook

It was last fall that Facebook unveiled a feature for retail advertisers that allowed them to get a better handle on the traffic that was passing by their stores at any given time. That type of information is useful not only in targeting ads, but also in making decisions about promotions or even store operations.

The new features take things a step further. They let advertisers include an interactive map of stores in their ad types, and they track those who saw the ads. That way, an advertiser can tell who followed up with a visit to a store and, at least in some cases, who made it to the checkout counter for a purchase.

The technology lets the stores match up that data, which keeps users anonymous, with their own in-store purchasing statistics and Facebook's other ad measurement tools, delivering a pretty comprehensive view of how ads are driving sales, and exactly who is buying.

It's not necessarily groundbreaking; Alphabet's Google has offered some advertisers a look at how ads drive store traffic for more than a year now, and other ad platforms are set to debut similar services. But Facebook has stepped into this game with distinct advantages, not the least of which is its huge user base.

There's a big market out there, and Facebook has just begun to capture it

While larger retail companies will probably test-drive the new features, this kind of ad tech should help Facebook to continue chipping away at the small and medium-sized business ad market.

And perhaps its biggest advantage is that 50 million businesses already maintain Facebook pages as a way to promote their businesses and reach out to customers. And only about 3 million of those businesses have paid for advertising on the platform.

Facebook's big challenge is getting more of those companies to start paying for ads.

It's all about targeting and measurement

Technology like this is going to help draw advertisers from traditional media formats such as newspapers over into the digital world. Advertisers are still overweighted in print by a factor of nearly 4-to-1 compared with time spent with the products, giving online ad platforms a $20 billion opportunity, according to research by analyst Mary Meeker.

Unlike traditional-media advertising, where you're trying to put your product or service out in front of as large a general audience as possible, online ads are often all about putting the right ad in front of the right person -- and sometimes, at the right time. That gives companies such as Facebook and Alphabet distinct advantages in the game, since they amass a wealth of data on their users that allow them to target ads with a laser-scope level of accuracy.

Facebook also continues rolling out new tools that allow advertisers to get a better gauge on the kind of return they're getting for their investment. They may show advertisers how well their ad is resonating, how well their ads are getting users to take action, or what effect the ad campaign had on sales.

The technology is trickling down

COO Sheryl Sandberg said last quarter that the company is beginning to see small businesses using the more advanced advertising technology it built with the help of larger companies with big ad budgets. This type of scalability is crucial to Facebook's quest to grow its number of advertisers exponentially in the coming years.

Local advertising is a $132 billion market, with spending scattered across newspapers and radio stations, cable TV systems, billboards, and direct mailers. By offering small and medium-sized businesses tools to better target and measure their ads, Facebook has the opportunity to continue taking share of this market for some time to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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