American Express Co. and Facebook Inc. have adapted the issuer’s rewards program to provide a perk no business can do without: advertising.
The arrangement is designed to make it easier for merchants to fund advertising on Facebook, an increasingly influential advertising platform. About 35% of small businesses in the U.S. use Facebook to promote their businesses, and 10% use Twitter, according to a survey of 728 small-business owners conducted by American Express Open Small Business Monitor in April.
Amex’s advertising play furthers its efforts to build a comprehensive network 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.”
If the Facebook partnership is to be successful, however, 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.
Amex said its new rewards offer is meant to address a clear demand its customers have expressed for advertising on Facebook. 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, Amex vice president for Membership Rewards partnerships.
Starting June 30, any customer with a membership rewards card can redeem points for advertising credits on Facebook in $50, $100 and $250 increments. 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 spokesperson 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 enable small businesses to 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 U.S. Census Bureau. American Express would not disclose how many small businesses use its credit and charge cards, or its Open Forum, a social network dedicated to small business advice started in 2007.
This month, American Express announced a partnership with AOL Inc., of New York, to enable AOL’s Patch customers to redeem special deals at 850,000 local merchants using the American Express network (
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 stopped waiving fees for advertisers 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 which have launched new businesses as after losing their 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 Novantas LLC., of New York.
While many small-business owners participate in social networks, they are not always savvy about how best to reach customers with 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.
Other financial companies have expressed interest helping small merchants advertise.
Bank of America Corp., of Charlotte, N.C., runs a free Small Business Online Community for customers and non-customers. 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.
“Deepening customer relationships is a big part of Bank of America’s growth strategy, [and] social media is an important channel for increasing customer engagement with small business owners,” a Bank of America spokesperson said in an email. “We are constantly evaluating how to increase our presence in social media to meet the needs of small-business owners.”
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 spokesperson.
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 spokesperson said.
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