Many small businesses were hit exceptionally hard by the coronavirus pandemic. While the pandemic curbed consumer spending, many small businesses struggled to adapt their businesses to online ordering.
Facebook (NASDAQ:FB) may be an essential piece of operations for small businesses desperate for traffic. The vast majority of its 8 million advertisers are small and medium-sized businesses, so Facebook has already developed tools that cater toward companies in those categories. What's more, it accelerated the timeline on new features designed for small businesses, like Facebook Shops and Checkout.
The coronavirus pandemic may serve to strengthen the ties between small businesses and Facebook, leading to more durable revenue growth for the social network.
Establishing an online presence the quick and easy way
Forty percent of small businesses do not have a website, according to a survey from Visual Objects taken before the pandemic hit the United States. Twenty-eight percent of respondents said they're unlikely to create a website in the future.
Perhaps their thinking has changed. Or perhaps those small business owners will simply use a Facebook Page or Instagram business profile to establish their online presence quickly and with minimal costs.
"People are looking for businesses on Facebook and Instagram more than usual during this crisis," COO Sheryl Sandberg told analysts during Facebook's first-quarter earnings call. So, not only is it an easy place to establish an online presence but it's an easy place in which to be found.
Small businesses can boost their presence on the internet through Facebook ads in an extremely cost-effective way. "We offer very personalized ads that can be directly targeted at small groups," Sandberg iterated on the call. "Those ads are often most important for small businesses who can't afford to buy broad based media."
In sum, Facebook has become even more important for small business owners wishing to establish an online presence and drive customers to their Page.
Facebook Shops is the next step
Small retailers looking to transition online could see a lot of benefit from establishing a Facebook or Instagram Shop. While they could establish an online store through another platform like Shopify, Facebook can provide an all-in-one solution for establishing a store and driving traffic to it. And there's no upfront or ongoing cost either.
Goldman Sachs analyst Heather Bellini sees Shops becoming a "de facto store front" for many small retailers. As such, she sees more small businesses establishing a presence on Facebook and using its advertising tools.
She also points out there are already 160 million small businesses with Pages on Facebook, but only 8 million active advertisers. An increase in 1 million active advertisers could drive $9 billion in additional ad revenue if ad spend per advertiser remains constant.
Facebook Shops also have the potential to boost e-commerce advertising prices over the long term through higher conversion rates and more accurate tracking.
Facebook is doing everything it can now to attract more small businesses
Facebook is extremely focused on supporting small businesses in any way it can. Beyond releasing new products like Shops, it started a grant program offering $100 million to small businesses in need. Those that don't receive grants can run fundraisers on Facebook's platform to keep their doors (both physical and digital) open. (Fundraisers were previously only available to nonprofits.)
Facebook is investing in small businesses now because there's a strong potential to see a return on that investment as consumer spending picks back up and the advertising market returns. That could translate into stronger ad revenue growth for the FAANG stock as we exit the pandemic. Moreover, Facebook could establish more durable revenue as it proves capable of supporting many types of businesses and grows the total number of advertisers on its platform.