Facebook Ad Boycott Is Expanding to All-Important Small Businesses

Some small businesses, which make up the majority of Facebook's advertiser base, are looking for alternatives in the wake of recent scandals.
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An advertiser boycott of Facebook is growing, and with it the risk that it could hit the company's financial results. 

More than 400 brands are participating in the #StopHateforProfit campaign, including some of the world's largest advertisers: Unilever, Coca-Cola and others. But smaller businesses that make up the majority of Facebook's advertiser base -- and are assumed to be most reliant on Facebook ad targeting -- are signing on as well.

Neal Taparia, founder of the game maker Solitaired, said his company decided to pull all advertising from Facebook after employees objected to spending money on a platform they viewed as damaging and divisive. 

The company, which builds games for mental acuity, had originally planned to invest heavily in Facebook to acquire new users. But in the wake of Black Lives Matter protests and incendiary posts by President Trump, employees questioned whether that plan was akin to a "deal with the devil," Taparia said. 

"We looked at the Facebook opportunity, and decided that there are other good growth levels for us -- so we said let's cut off Facebook, listen to our team, and allocate this marketing budget elsewhere," Taparia said. He said the company has found early success in SEO marketing in lieu of Facebook.  

So far, there are no signs that Facebook has been able to stem the boycott writ large. Facebook CEO Mark Zuckerberg announced several policy changes last week, including a new labeling system for objectionable content from public figures, but that didn't seem to appease advertisers, with more joining the boycott over the weekend and this week. Reuters reported that last-ditch talks between Facebook and various advertisers, shortly before the boycott officially went into effect on July 1, yielded no compromise.

In an open letter on Wednesday, Facebook's VP of global affairs, wrote that Facebook "does not profit from hate." Zuckerberg and Facebook officials reportedly plan to meet with advertisers this week to discuss the boycott. 

So far, Facebook analysts aren't exceedingly worried about the boycott's long-term impact. In the first place, major advertisers make up a minority of Facebook's overall ad revenue: The company told investors last year that its top 100 advertisers comprised less than 20% of total revenue. Around 7.9 million of Facebook's base of 8 million advertisers are small to medium-sized businesses, according to Wedbush. 

For some smaller advertisers, it can also be very difficult to quit Facebook.

"There are really strong communities there that my clients need to reach; COVID has made it almost dangerous for us [to leave Facebook]," added Jess Columbo of Tiller, a small digital marketing agency that specializes in healthcare. 

Facebook's ad targeting capabilities make it vital for some smaller advertisers, particularly those that -- despite ethical objections to Facebook's policies -- rely on the platform to deliver information to certain audiences. 

Analysts also note that the size and breadth of Facebook's advertiser base could insulate it from direct financial damage, with advertisers who don't necessarily object to the company's policies taking the opportunity to pick up cheaper ad inventory, offsetting the boycott's impact. 

Still, marketing agencies are fielding more questions than ever from clients looking for less controversial alternatives to Facebook. 

"We don't want to see ads that we run on these platforms sit side-by-side with the hateful content that is on [Facebook]," said Joe Cotellese of the app development firm AppJawn. "It implies that we agree with those statements which we most definitely do not."

Writing in a recent note, Jefferies analyst Brent Thill wrote that if the Facebook advertiser boycott extends beyond July, unspent ad dollars may instead flow to Google's  (GOOGL) - Get Report YouTube, which has invested considerable resources in "brand safety" -- mechanisms to ensure that ads don't appear alongside hateful or objectionable content. Small advertisers may be giving Facebook alternatives like Amazon  (AMZN) - Get Report, Pinterest  (PINS) - Get Report or Google a second look in light of brand integrity issues. 

"We're having daily strategy conversations internally and externally about how to best advise our brand partners' media budgets," added Scott Harkey of marketing firm OH Partners. "As multinational brands continue to join the boycott on Facebook, there's an opportunity for brands to consider other platforms including Google, Amazon and Instacart. These other platforms have a strong ROI with click-to-purchase options."

Facebook  (FB) - Get Report shares are up 13% year to date.