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Facebook Inc.'s Latest Milestone Could Be Its Most Important

By Tim Brugger - Mar 9, 2016 at 10:00PM

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The social media king has focused on small-business ad partners for years, and that's continuing to pay dividends.

The milestones just keep coming for Facebook (META -1.23%).

In the past six months, Instagram has begun to be monetized, which in and of itself is a significant opportunity to boost Facebook's already sky-high revenue growth. CEO Mark Zuckerberg didn't share the impact Facebook's photo-sharing site had on its top line last quarter, but most pundits agree the upside is tremendous. Facebook also topped the 1 billion daily active user (DAU) plateau last quarter, which speaks directly to its strong engagement levels. The Oculus Rift virtual reality headset has hit store shelves, WhatsApp is quickly approaching a billion monthly active users (MAUs), Messenger has grown to more than 800 million MAUs, and the list goes on.

One key metric that is sometimes overlooked, and could be the most important, is how quickly Facebook is growing its constellation of advertising partners – most of which are small to medium sized businesses (SMBs). The impact this key demographic is having on Facebook's financial results cannot be overstated. Facebook recently shared a couple tidbits involving its global appeal to SMBs that could prove to be as critical to its future, if not more so, than any of the aforementioned milestones.

Image courtesy of Facebook

The metric that matters
In a recent blog post Facebook shared that it now boasts a whopping 3 million active advertisers around the world. Most of these are SMBs. COO Sheryl Sandberg often mentions the importance of SMB advertisers to Facebook, but there have been no specific numbers.

Though Facebook's domestic user engagement and unmatched U.S. digital ad market remain huge opportunities, an impressive 70% of its ad partners come from outside the U.S. Facebook's appeal to global marketers isn't difficult to understand. A recent report from eMarketer suggests that more than half of the U.K. population will log into Facebook at least monthly this year. Clearly, Americans aren't the only consumers making "friends" with Facebook on a regular basis, and that means advertisers will follow.

Another key metric Facebook recently shared even tops breaching the 3 million ad partners plateau. There are now 50 million SMBs with Facebook pages.  Even if all 3 million of Facebook's current advertisers were included in those 50 million SMB pages, that would still leave 47 million potential new small-business advertisers.

For comparison's sake
Seven months ago, Facebook shared a laundry list of upsides as it relates to SMBs, pointing out that it had "over 2 million advertisers," and 40 million SMBs with active pages on the site. Since then, Facebook has grown its ad partner base about 50% and added another 10 million SMB pages.

To put that into perspective, with its Q4 2015 earnings release in February, Twitter (TWTR 1.91%) announced that the number of its advertising partners grew 90% year-over-year: a notable accomplishment, to be sure. Problem is, all that growth brought Twitter's total to just 130,000 revenue-producing marketers.

Twitter can't be expected to match the number of Facebook's ad partners, of course -- the latter's size and engagement levels warrant a larger group of marketing partners. However, it is telling that Facebook has added multiple times the number of advertisers in the past six months alone than Twitter's entire cache of marketing partners.

Facebook would love to lure more big brand names into its advertising fold; COO Sheryl Sandberg is asked about doing just that nearly every quarter. But Facebook knows where its bread is buttered, and that's with SMBs. A new, easy-to-use video development tool for SMBs called "Your Business Story" is the latest in a slew of features Facebook has introduced to help transition its non-advertising SMB pages into revenue producers. Your Business Story lets business make a video that "tells people what your business brings to the world."

Instagram, the eventual monetization of WhatsApp, and Rift VR headset sales, to name a few, likely top many investors' lists of Facebook's alternate growth drivers, and rightfully so. But make room on that list for its rapidly expanding number of SMBs, because small businesses are the foundation its other growth drivers are built on.


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