The Great Facebook SMB Conversion Challenge

Facebook made it known last week that it wants to be best friends with small businesses.

Maybe even their only friend.

Facebook joins a long line of players who want to “friend” small businesses – from alternative lenders to mobile payments players to card issuers to acquirers to eCommerce marketplaces. You name it, everyone and his mother wants the SMB on their team.

It’s totally understandable – there are a lot of small businesses in the world to court.

Just to put some metrics to it, in the U.S., 95 percent of all businesses have fewer than 50 employees – that’s a little more than 5.8 million (non-farm) businesses. All in, businesses with fewer than 500 workers – about 6.2 million of them – employ about 50 percent of the active workforce and drive nearly 30 percent of GDP. We track the health of a particular category of small business (we call them store front businesses) each quarter and produce the Store Front Business Index that benchmarks how well they are doing. Think of storefront businesses as the local establishments that are the bedrock of communities – local grocers, coffee shops, restaurants, convenience stores, nail salons and hair dressers, the dry cleaner, the yoga studio, etc. We also think they’re the bellwethers of how vibrant local economies are. (If you want to see how well they’re doing, check out our latest Storefront Index here.)

But all small businesses – storefronts or otherwise – face big business challenges: finding new customers and growing their businesses. That’s why Facebook is so appealing to so many SMBs – 1.5 billion monthly active users globally is a pretty big pond in which to fish for new business.

So it shouldn’t come as much of a surprise that Facebook reports 45 million active business pages on its platform and a lot of small business advertisers. Some reports even suggest that as many as 2 million of those businesses buy advertising on Facebook.

Judging from last week’s earning call, Facebook would like even more of that action to come from more of those small businesses.

As announced during their earnings call, Facebook is doing a bunch of things to tie SMBs even closer to them. Local Pages will become more robust with separate tabs for Video and for Shopping. Call to Action buttons will initiate outbound messaging. A Photos tab will link Instagram content to Pages. Monitoring and managing Pages – even via mobile devices – is now made easier thanks to an improved UX.

For the SMB, Facebook has made their use of different aspects of their platform – Messenger and Instagram and Timeline – quite seamless.

Concurrently, Facebook is also making a push for more video content from those SMBs. Their latest stats suggest that 8 billion videos a day are uploaded from some 500 million users and that some 1.5 million SMBs share video content daily with their user base. Video content is pushed further up on a user’s newsfeed to encourage even more producers of video content.

Of note is the fact that 70 percent of those videos are now being loaded directly from users to the Facebook platform. If you’re Google, that’s a pretty scary – and somewhat recent – shift. Until recently, most of the video on the Facebook platform came via YouTube.

By all accounts, Facebook is positioning Local Pages as the online presence that these SMBs could never afford themselves to build – free, loaded with valuable features and functions and that big added value, of course, of being discovered by the massive number of users it attracts on a daily, weekly and monthly basis. And for those users to become customers. All, of course, within the comfort of the Facebook walled garden.

If it were only that easy.

Those users still have to find that local business and its Local Page on Facebook. That can only happen if a user already knows that a business has a Local Page and checks it out regularly as part of the 20 minutes they spend now on Facebook each time they visit. Or if the business pops up in the newsfeed of customers or potential customers. That’s much tougher to achieve organically. Just liking a Local Page or a business is no guarantee that all updates will appear in that user’s newsfeed, especially when that business is small with a correspondingly small fan base.

That’s the crux of the conversion problem – and Facebook’s SMB recruiting challenge. One that Facebook has to solve in order to really become best friends for life with SMBs.

If a SMB has to spend time and energy marketing to a customer so that they can find them on Facebook, there needs to be a demonstrable ROI to throw ad spend in that direction, especially when so many other options are available that can help them find customers in their local markets.

I know a little bit about this from some work that I did a few years ago helping to entrepreneur a social commerce platform that would live on the Facebook fan pages of local businesses. The target audience was SMBs for the very same reasons that Facebook has wrapped arms around them: most of them had crappy websites that, at that time, didn’t even enable commerce. They also didn’t do much to market their services well, were desperate for new business and knew that all of their customers and prospective customers were on Facebook.

In the restaurant space — where the website crappiness-meter hits an all-time high and where there’s actually a dearth of websites — the problem was even more acute. Local restaurants had invested money into building a fan base on Facebook but had no way to convert those fans into paying customers. When presented with an opportunity to do that via an easy technology solution that would become part of their existing page, that would also allow that experience to ”go viral” and that would allow them to control every aspect of the message and the offer, it almost sounded too good to be true.

One thing’s for sure – it all sounded great in PowerPoint.

And worked pretty well in a few pilots and test trials.

Separate tabs on what we now call Local Pages allowed customers to make purchases — in this case e-gift cards with an incentive to make the purchase — and it worked like a champ. Technology was slick, payment was flawless, redemption at the restaurant was easy. SMBs had a wizard that they could use to customize their pages and their experiences and their offers and pricing. Messaging with photos (which Facebook algorithms love) were posted on Local Pages’ timelines and displayed beautifully.

There was only one problem – those posts never made it to the users’ newsfeed.

Say hello to The Great Facebook SMB Conversion Challenge.

It’s now well-known that only 16 percent of the entire Facebook audience sees a post. That wasn’t common knowledge a few years back – it wasn’t even published. Disgruntled brands forced the disclosure. You probably remember all of the mania that brands were engaging in around getting “likes” so that brands could communicate with those fans – one on one?

Turns out that made a lot of agencies who designed “like” campaigns rich but didn’t do much to drive conversion and new business. (I also suspect that an awful lot of likes came from marketing companies that paid people in places like Bangladesh to “like” their clients.)

[bctt tweet=”Forrester reports that top brands only reach about 2 percent of their Facebook audience.”]

Forrester reports that top brands only reach about 2 percent of their Facebook audience – reach as in they ever see a post. And that .07 percent of those who are reached do interact with a post. That means that if you’re a small business with 2,500 fans – and that’s at the high end for most SMBs – only a tiny fraction of those fans might ever see a post and click through to the page where offers are positioned. When the conversion math dust settles, getting .07 percent of 2 percent of a fan base of 2,500 doesn’t yield a number that gets many SMBs terribly excited.

Now, of course, those numbers can be improved – and a lot – with advertising.

But buying ads on Facebook is really expensive. Lots of SMBs do, often because it’s the only marketing they do.

What SMBs must now contemplate is where they have the potential to gain the most bang for their marketing buck.

That’s also why Facebook continues to invest in functionality to make the SMB presence on their platform even more appealing. You can see from their quarterly results that they’re dumping a ton of money into their platform and marketing to get, among other things, SMBs on board – including as a commerce partner. Who could blame them? Facebook wants and needs SMBs to get on board. They’re an ad-based platform, now competing with Google Search and YouTube for ad dollars. It’s no accident that it wants to get more deeply into Search and why video is such a huge focus: More channels for ad dollars to be derived.

And who can blame the SMB for playing along. It’s a pretty compelling sales pitch when the value proposition is the ability to leverage the assets and sophistication of a global social network that a SMB could never replicate in a million years.

But it remains to be seen if Local Pages will work as advertised for Local Businesses. Facebook is a global behemoth, but most SMBs don’t need that – they just want to do business with local customers – and lots more of them. If they have to do the work – and spend the money – to find customers in their own backyards and push them to a page on Facebook where they then transact with them, the big question is whether that’s a better return on their investment than pushing them to a website that’s under their control instead. When asked, 60 percent of SMBs who do advertise on Facebook don’t know if they are getting the ROI on that investment.

It’s that uncertainty that now gives SMBs pause, especially since there are also a number of other options to get visibility, access to customers that other aggregators or platforms have assembled and distribution. The old standbys — eBay, Amazon, Yelp and Craigslist – are strong contenders. As are lots of creative new channels, including Google Now and mashups of issuers with consumers and mobile payments platforms with local merchant relationships a la Chase Pay and LevelUp that have the potential to deliver millions of relevant customers to local businesses. Depending on the business, good old-fashioned SEO-optimized content and Google Search could also work just fine. Websites are also pretty cheap to build these days, and there are lots and lots of options now for payment-enabling those sites, and SaaS services that make it easy and cheap for those sites to be as robust as any SMB needs them to be.

[bctt tweet=”SMBs have to believe that when customers go searching for the product or service that they are seeking, that Facebook is a place that they’ll turn to …”]

SMBs have to believe that when customers go searching for the product or service that they are seeking, that Facebook is a place that they’ll turn to initiate that search and then buy – not Amazon, not Pinterest, not Google and not Yelp.

That might be a big leap. So far, social commerce on Facebook has been a bust. Users go to Facebook to be entertained and informed, not to shop or buy stuff. It’s true that Facebook is a huge driver of traffic to news and eCommerce sites, but whether a consumer that would otherwise click off her newsfeed to the local retailer, would, instead, click through and buy from that retailer’s fan page remains unproven.

Of course, that’s not to say that Facebook is irrelevant for SMBs. But instead of being the only commerce and payments friend they have, Facebook could end up being one of many competing for their attention, time and marketing dollars.