It's no secret that Facebook (NASDAQ:FB) has quickly turned itself into a digital -- and particularly mobile -- advertising juggernaut. The company's second quarter ad revenue was up 43% year-over-year. What's more, its share of the overall digital advertising market is expected to grow from 10.6% last year to more than 16% by 2017, per eMarketer.
It has been able to do that by leveraging its huge user base of nearly 1.5 billion people and all the information they provide as they share experiences, photographs, and opinions, to target the right ads at the most likely prospective customers.
But those advertisers seeking to sell clothes, cars, and concert tickets to eager consumers are only part of Facebook's advertising base. The other group of advertisers, businesses courting other businesses, is actually the company's faster area of growth -- and not by a small margin.
But before we get into the numbers, let's take a quick step back.
B2B is twice overall growth
Based on research from AdRoll that surveyed 1,000 marketers, it seems the area of advertising that most interests these businesses on Facebook is retargeting (and it's important to note that retargeting is AdRoll's bread and butter). You've all seen these ads -- turn to Google to find something you're looking for, visit some sites that sell related products, and then later find yourself on a different site looking at ads promoting that earlier business or the products you browsed. Sometimes, it seems a bit creepy, but it also can be very effective.
Overall, spending on retargeting ads on Facebook was up 31% year-over-year, according to AdRoll. But growth in spending by companies dealing in business-to-business, or B2B, sales was up by nearly twice that at 61% over the prior year.
This increased spending is no coincidence. In late 2013, Facebook rolled out a platform it calls "Custom Audiences" that enables businesses to effectively retarget potential customers and reach them across different devices. While the company doesn't generally address B2B specifically, it's an important segment of the market.
Tapping a big market
B2B companies will spend about $77 billion on digital advertising and marketing this year. Facebook, with annual revenue of about $12 billion, will surely want to continue growing its share of that market.
AdRoll President Adam Berke talked with AdWeek's Inside Facebook about the growth of B2B retargeting on the platform and why it's a big area of growth: "[I]t's very hard to find B2B decision makers and CIO types and people who are making those types of buying decisions for their companies," he noted.
Unlike the store that's trying to sell you new shoes, the B2B companies are using Facebook not to make direct sales but to appeal in other ways. Using analytics, the businesses look to tailor what they offer the prospective client. For example, one who had been searching for information might be offered a white paper or other material. Another who had gone deeper into the buying process might be offered a free trial.
One step in a longer sales effort
The actual conversion to a sale typically takes place outside the Facebook platform, but because Facebook had proved so valuable in reaching the customer, the B2B companies are willing to pay to keep them in the loop.
By adding Facebook ads, businesses were able to nearly double the reach of their ad impressions, AdRoll reported. What's more, the advertisers found they were spending about one-third less in click costs for each acquisition they made, a sign that the ads were proving more effective.
It's no Oculus Rift but ...
The growth in B2B advertising is a further sign of why Facebook's platform has been able to build such a commanding position in the digital and mobile ad markets. It's become a place where people spend a greater part of their lives each passing year. That's no longer limited to leisure time -- it includes time at work, and it includes those people who are in positions of making purchasing decisions for the companies they work for -- or own.
The B2B market won't generate a lot of buzz around earnings. It just isn't that sexy for a company with so many headline-worthy projects in the works, but it does provide Facebook with a significant avenue of revenue growth.
John-Erik Koslosky owns shares of Facebook and Google (A shares). The Motley Fool owns and recommends Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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