Elimination of Targeted Advertising Would Decimate Small Business Revenue, Damage New Business Creation

By SBE Council at 24 February, 2023, 10:10 pm

Small Business Policy Insider

by Raymond J. Keating –

Small business owners understand that you can create a truly valuable good or service, but if you don’t invest in making sure potential customers know about it, then your enterprise is doomed. Businesses must advertise to build awareness, drive sales, and to survive.

But advertising long had been costly in terms of total dollars and what portion of those dollars were wasted in reaching people who would have no interest in the product.

Thankfully targeted digital advertising via the internet, including social media, came along and changed the advertising equation for millions of American small businesses. A Bank of America post explained the benefits of targeted, digital ads that small businesses well understood and experienced:

“On Facebook or Google, and actually, on any other similar digital medium, you can now specifically and narrowly locate, target, and reach people who are most likely to appreciate your ad, click on it, and move into your sales funnel. For small businesses, the days of mass selling to mass audiences are (or should be) over.”

Unfortunately, a host of politicians and their appointees, who claim to have the interests of small business at heart, are pushing ahead with efforts that would effectively eliminate targeted digital ads. Their misguided undertakings would undermine the ability of small businesses to target their most likely customers. The Federal Trade Commission (FTC), under the leadership of Lina Khan, seeks to regulate online data. The Department of Justice wants to effectively dismantle Google’s online advertising business. And many in Congress looks to do similar things, whether lashing out at these technology firms due to an anti-business ideology or over political differences. Assorted state lawmakers are getting in on the act as well.

It’s worth taking a look at a 2019 study from the Small Business & Entrepreneurship Council – The Digital Boost to Startups and Small Business: Online Advertising Delivers BIG Benefits – which examined the impact of online advertising for small businesses. Among the findings:

● 73 percent of small businesses stated that without online advertising “it would impact my ability to effectively market my products and services and to grow my business.”

● “Nearly three-quarters (73 percent) of startups consider online advertising as a factor in starting their business, and in their confidence with regards to reaching potential customers once the business was launched.”

● “Small businesses less than four years old widely agree that online advertising provides an affordable means for launching and growing their businesses, with 9 in 10 startups acquiescing to this point of view.”

● “More than four in five (86 percent) startups depend on the targeting capabilities of online advertising for their continued survival. In fact, two in five (44 percent) strongly agree that the ability to target customers through online advertising is a feature that is important to the survival and growth of their businesses.”

● “Four in five (80 percent) startup companies consider the ability to reach customers via online advertising as a key factor in starting their business.”

And more recently, SBE Council’s survey of entrepreneurs who started businesses during the pandemic found the following:

● 89 percent of these entrepreneurs agreed that social media was a major factor in launching their businesses; 87 percent said access to electronic payment options was important; 79 percent cited affordable online ads; 77 percent pointed to e-commerce sites and website builders; 73 percent noted access to “back office” services provided by technology platforms; and 56 percent highlighted access to online marketplaces like Amazon, e-Bay, Shopify, Etsy, and Newegg.

● Also, 68 percent of these pandemic entrepreneurs said they relied on established tech platforms, such as Google, Facebook, Apple, Amazon, Instagram, Microsoft and TikTok, either a great deal (38 percent) or quite a bit (30 percent), with another 22 percent saying somewhat. That tallied up to 90 percent.

● And 61 percent were worried that proposed regulations on tech companies would result in negatives for those tech enterprises and for their own businesses. Among those concerned, 58 percent were worried that such tech regulation would make it more expensive for them to access and retain customers; 58 percent were worried that they would have to pay for services that are currently free to them; 49 percent were concerned about disrupted communications with current and potential customers; 47 percent were worried that it would be harder for customers to find their business; and 43 percent believed that customer acquisition would become more difficult.

None of this is surprising.

Digital advertising has been an efficient, cost-effective way for entrepreneurs to start up and build their small businesses by reaching potential customers. Efforts by elected officials and regulators to attack leading U.S. technology firms – derisively labeled “Big Tech” – not only make no economic sense, including from an international competitiveness perspective, but small businesses wind up getting hit hardest.

Small enterprises suffer due to facing increased costs as purchasers of online ads, and as potential competitors in the advertising arena. After all, large businesses are better able to absorb regulatory costs than are small firms, and both entrepreneurs and investors tend to be scared off by the heavy hand of regulation, diverting their ingenuity, creativity and resources elsewhere.

Make no mistake, increased regulation – and potential elimination – of online advertising would make it more costly and difficult for small businesses to reach potential customers, as costs would increase and effectiveness would decline. Again, technology and online platforms have been making it easier and more cost-effective for small businesses to find new customers and compete with larger businesses, but some politicians and regulators are working against local businesses through their short-sighted and intrusive regulatory efforts. Congress and the Biden Administration need to work on creating certainty and making it less costly for entrepreneurs to launch and grow a business. Intrusive rules that prevent small businesses from finding new customers would do the exact opposite of what is needed.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.