Amex's Facebook Ad Rewards Are All Business
American Express Co. has added a cardholder perk designed to make spending on its cards worthwhile for a broad swath of small business owners: advertising credits on Facebook.
The social network is an increasingly influential advertising platform. About 35% of 728 small businesses surveyed by Amex in April use Facebook to promote their wares, and 10% use Twitter.
Amex's reward partnership with Facebook Inc. builds on the issuer's efforts to serve small-business owners, including a growing number of sole proprietors, through an internal social network and through various recent payments partnerships.
"American Express is demonstrating a better understanding of [small-business] customers and the changing needs of these customers," said Christine Barry, a research director for Aite Group LLC of Boston. "Small-business owners feel that financial institutions don't understand their needs and are not providing them with the right tools."
For the Facebook partnership to succeed, experts said small-business owners need significant education on how best to use social media and advertising in that channel.
"The bigger question is uptake and relevance, and how familiar small businesses are with social media channels," said Jacob Jegher, senior analyst for Celent.
In November, Amex hosted an event called Small Business Saturday where the company offered entrepreneurs a one-time, free Facebook advertisement. It said 10,000 businesses signed up for the free advertisements.
"The world has changed dramatically in the last few years and the pace of change in the online space is enormous, and there is a recognition among [small] businesses that this is a mechanism that you want to use and may need to leverage to promote the business," said Joshua Berwitz, vice president for membership mewards partnerships at American Express.
As of Thursday, any customer with a membership rewards card can redeem points for advertising credits on Facebook in increments of $50, $100 and $250. Customers are then given a code to translate those credits into advertisements on American Express OPEN's Facebook page.
"Facebook has created a marketing platform that delivers real results for small businesses," a Facebook spokesman said in an email. "This effort by American Express gives these businesses a new and convenient way to pay for Facebook advertising."
The spokesman said such ads will let small businesses harness word-of-mouth marketing at unprecedented levels. More than 500 million people use Facebook.
There are nearly 30 million small businesses in the U.S., according to the Census Bureau. American Express would not disclose how many small businesses use its credit and charge cards, or its Open Forum, a social network for small-business advice started in 2007.
American Express announced a partnership this month to enable AOL Inc.'s Patch customers to redeem special deals at 850,000 local merchants using the Amex network. Also in June, American Express announced a partnership with Foursquare Labs Inc., which lets cardmembers link cards to Foursquare profiles to redeem merchant specials seamlessly without coupons or special codes.
Facebook, which competes with Google for advertisers, is not the first company to attempt to benefit from addressing merchants' payment and advertising needs at once. When Google introduced its online payment system, Google Checkout, in 2006, it waived processing fees for merchants who advertised with Google. It began charging fees in 2009.
Industry observers said American Express' program is different, as the exchange of points for advertising is a more open system. Observers said Amex's offer is particularly useful for sole proprietors, many of whom launched new businesses after losing jobs during the recession.
"Structures like this make it easy for new businesses of all types to promote themselves," said Les Dinkin, a managing director for the consulting firm Novantas LLC.
Many small-business owners participate in social networks, but they are not always savvy about advertising. Amex's offer won't necessarily transform its customers into social media experts. " 'If you build it, they will come,' does not always work," Jegher said.
Jegher said Amex could easily leverage its OPEN forum to educate entrepreneurs about advertising on social media.
Other financial companies are helping small merchants to advertise. Bank of America Corp. runs a free Small Business Online Community for customers and noncustomers. Like Open, B of A's community offers advice and articles, and the opportunity for entrepreneurs to exchange ideas. B of A's site has attracted 65,000 members and more than 4 million visitors since its launch in 2007.
"Social media is an important channel for increasing customer engagement with small-business owners," a B of A spokesman said in an email.
Similarly, Intuit Inc. of Mountain View, Calif., hosts a small-business blog and a small-business forum on Facebook. Intuit has 7 million small-business customers and gets a third of its revenue from that customer base, according to a spokeswoman.
Intuit also processes $17 billion worth of small-business payments annually. "If our customers start telling us that making and processing payments via social media is a key need, we will explore how best we can solve that need," the spokeswoman said.