Direct, smaller advertisers boost Facebook as big brands cut back

While some large marketers are cutting back their advertising efforts on Facebook, smaller brands are often filling the gap, reports Geoffrey Precourt, WARC’s US Editor.

Sheryl Sandberg, Facebook’s chief operating officer, looked to Thailand when she tried to demonstrate the digital platform’s potential as a tool for surviving the economic consequences of the Coronavirus pandemic.

Penguin Eat Shabu, a small Bangkok chain of restaurants, had to shut down nine eateries when the pandemic hit. It went to Facebook with a simple message: “Online food ordering service ... ready to deliver directly to your home throughout the city.”

The response was immediate: 350 sales in one minute, Sandberg told investors on an earnings call. And that success, she offered, wasn’t a fluke: A second offer led to 2,500 hot-pot sales.

“After initially putting their employees on unpaid leave,” the Facebook COO continued, “these sales increased their revenue and helped restore employees to full pay.”

Sandberg’s lesson: “Marketers of all sizes have more limited budgets. So they need to make every dollar work as hard as possible. That means measuring as hard as possible. That means measuring the value of their advertising is more important than ever, which is something our personalized ads provide.

“For years, we have made major investments in systems and tools that enable businesses to easily understand their return on investment. In the current environment, these investments are paying off.”

Facebook, like the rest of the world, is pointing to such narrative snippets for good news in a time of crisis. And it’s also looking to China to see how that marketplace experiences in the country – the first nation to be hit by COVID-19, and which is now entering a recovery phase – might inform enterprises elsewhere.

For the digital platform, the insights require a bit of digging: The Chinese government prohibits consumers from signing up for Facebook. But, said David Wehner, Facebook’s chief financial officer, “There are China-based advertisers reaching people outside of China ... We did see a pullback of revenue in China earlier in the quarter and we have seen a recovery there.

“China tends to, for us, index pretty highly with gaming and e-commerce, and [in] those segments that are driven toward online outcomes, we're seeing relative strength.”

Driving success in those verticals, Sandberg offered, are two factors: First, as people stay at home, these sectors are seeing more use of their products and services. Second, advertisers in these sectors tend to optimize for measurable objectives, and “we are generating sales at lower prices due to the overall reduction in ad demand.”

And, indeed, even for a small enterprise like Penguin Eat Shabu, “If a [company] needs to shift to a delivery model, they can now add delivery links to their Facebook page or Instagram business profile,” Sandberg said.

“People are looking for businesses on Facebook and Instagram more than usual during this crisis. So, our free products are particularly important to the many brick-and-mortar businesses pivoting quickly online.

“Even in the United States, before the crisis, one in three companies didn't have a website, because they can be expensive and difficult to set up even in the best of times. Our Facebook page or Instagram business profile is free and, in a matter of minutes, [can be] established as a digital storefront.”

“We’ve seen sort of a pullback in advertising from both large and small advertisers,” Wehner said. “Given the uncertain economic climate, we know that small- and mid-sized businesses [SMBs] are getting hit hard … but there is no-one-size-fits model for SMBs.

“We have some businesses that are obviously suffering greatly from the shelter-in-place orders. And then we have SMBs that are digital natives … that are doing relatively better.”

Focused verticals, Wehner said, are also “doing better” as larger brands take a hiatus from Facebook, and “we're able to backfill that with other bids from other clients.” And that pricing makes it even more viable for direct-to-consumer brands “to get the ROIs that they want.”

And, he added, though Facebook has never offered a detailed analysis, “by far, the majority of our revenue” has been powered by direct response. “It's really driven our business for many years,” said Wehner.

“And it continues to drive our business. COVID has accentuated the importance of people who are bidding for online conversions.”

And although he admitted Facebook has witnessed “a fall-off in some broad-based brand advertising,” the shift to “those things that are driving direct results … isn't really surprising, given the economic climate.”

The relative prosperity of such direct-to-consumer offerings, reported Mark Zuckerberg, Facebook’s founder/chairman/CEO, has convinced “a lot of small businesses that are still primarily physical [to make] a big push to do more selling online.”

As such organizations “move toward selling stuff online for the first time, we're also seeing a lot of businesses that already had a digital presence really transitioning to have their digital presence be their primary presence,” Zuckerberg added.

And, indeed, the Facebook chief added, “That plays into a pre-existing long-term trend.”

It was no surprise that Zuckerberg believes it is “important that, rather than slamming on the brakes now, companies keep on building and investing in the new needs that people have [and] to make up for some of the stuff that that other companies would pull back on.”

Moreover, he added, “I think it's a responsibility to keep on investing in the economic recovery in the near term.”

As for a longer overview, he volunteered, businesses that are grounded in advertising – and he included Facebook in that category – “need to recognize that advertising is more volatile and sensitive to the macro-economy. If you're going to have this kind of a business, you really want to maintain high margins.”

That focus, he continued, is particularly important “when we go through periods like this … to remain stable, healthy and able to keep on building the things that are important for the long term.

“We are willing to accept a reduction in margins in the near term, but we understand – and I personally have an appreciation for – the importance of maintaining high margins over time. We're not going to kind of take things down this year and then continue taking things down a lot in the future,” said Zuckerberg.

Instead, “if we invest a lot more over the coming years, we are going to look for ways to manage expenses to make sure that we can maintain high margins over time.”