Can Facebook Truly Execute Against Its Local Opportunity?

An AdAge article about Facebook this morning focuses on its local and mobile opportunities. However, as I said before, the S-1 said almost nothing about local or small business. It also didn’t talk about the national-local opportunity for Facebook. It did, however, speak extensively about mobile.

Here are the relevant excerpts from the AdAge piece:

Facebook has also been positioning itself to benefit as small and midsize businesses move ad dollars to the web. Last month it announced a program that will distribute $130 in free advertising credits to 50,000 Western European businesses; it introduced a similar program to dole out $50 credits to 200,000 U.S. businesses last fall . . .

Facebook also opened up its Ads API to all developers over the summer, which will uncork spending by small businesses. The API makes scaled Facebook ad-buying easier for marketing agencies . . .

Facebook is also helping big brands execute experiences locally. Walmart leads the way with its “My Local Walmart ” app, launched in October. It contains pages for 3,500 unique stores and enables users who have put in their ZIP codes to have information on discounts, new products and in-store events delivered to their news feeds . . . 

For Facebook, local targeting is a way to boost ad pricing. Hyper-local targeting, across the board, tends to be eight to 10 times costlier on a cost-per-click basis than national targeting, Mr. Tuff said. He believes it’s worth it . . .

What we see in the discussion above are four things:

• An effort to promote direct SMB ad buying on Facebook (will have limited success)
• Third parties buying ads on behalf of SMBs (think Yodle or YP publishers; more potential here)
• Brands using Pages to promote local stores or deals of one sort or another (no revenue to FB)
• Higher CPMs/CPCs with localized ads, which perform better and are more expensive than national ads (Facebook ad CTRs improve by 2X when the city name is in the ad creative).

MomentFeed’s Robert Reed is also quoted in the piece talking about deals and offers, which Facebook seems to be hesitant or ambivalent about.

I think we’ll soon see considerably more geotargeted ads on Facebook, generating more revenue for the company. I also believe that, as they did with SEM, third party sales channels will buy Facebook ads on behalf of SMBs. But the challenge will be proof of value and “demand stimulation.” In the same way that SMBs have been ambivalent about paid-search programs (vs. organic ranking) they’re likely to be similarly ambivalent or hostile to ads on Facebook (vs. Pages).

While paid-search is effective and Facebook Ads drive Likes and fan adoption, SMBs will need to be educated about all this. That represents a problem for local sales channels unless they take a bundled or “black box” approach, and Facebook becomes just one more place that leads come from.

I had previously thought deals were a huge opportunity for Facebook but the company has distanced itself from deals. It’s not clear they’re going back in in any vigorous way. However Facebook may have no choice but to focus more on deals as it embraces mobile advertising.

Long ago I told Facebook that I felt an enhanced (paid) profile of some sort was a compelling way to go for SMBs. I could imagine additional capabilities or services associated with a subscription-based enhanced profile. Between 40% and 70% of the “addressable” SMB market have Facebook Pages. But most don’t know what to do with them once they’re up.

ReachLocal, Local.com, Yodle, yellow pages publishers and others like VerticalResponse/Roost and Fanminder are providing social media management on behalf of SMBs. But very often those services are minimal beyond Page setup (e.g., monthly updates). For social media to really work SMBs or their surrogates have to get more deeply involved on a regular basis. That all begs the question about social media management by third parties at scale and whether it can be done effectively — and profitably.

But back to Facebook. The company doesn’t really have a revenue-generating “product” for SMBs at the moment, beyond ads. Ads will be of limited appeal, and therefore generate limited revenue for Facebook. The company will have greater success with national-local advertisers doing zip-level targeting and audience targeting.

I would agree that Facebook does have a substantial local opportunity. But in my mind there’s a major, open question about whether the company will be able to execute against that opportunity.

Update: I neglected to mention that there’s an interesting local opportunity for Facebook around use of Facebook credits and offline loyalty tie-ins.