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FORTUNE Most Powerful Women Summit - Day 2
Chief operating officer of Facebook Sheryl Sandberg speaks onstage at the FORTUNE Most Powerful Women Summit on Oct. 16, 2013 in Washington D.C. Paul Morigi—Getty Images

Sheryl Sandberg: Simplifying Facebook Ads Led to Enormous Growth

Feb 24, 2015

Facebook has come a long way from the banner ads that populated the site back in 2004. The world’s largest social network announced Tuesday that it now has 2 million "active advertisers," defined as an advertiser that's placed an ad in the last 28 days.

The company crossed the milestone less than two years after it reached 1 million advertisers in June 2013.

Facebook has recently been taking pains to court small businesses in particular, cutting the number of ad products in half to make its offerings easier to understand. The Menlo Park, Calif.-based company has also been hosting free marketing training sessions around the country. A new Ads Manager app launching for iOS Tuesday that lets Facebook advertisers create and edit ads on the go could help lure still more smaller marketers.

This Is What Your Facebook Profile Looked Like Over the Last 11 Years

The Original Facebook Group Page, 2004.
The Original Facebook Group Page, 2004. Before people realized how awesome pictures are.Courtesy of Facebook
The Original Facebook Group Page, 2004.
Facebook Profile Page, 2005.
Facebook Profile Page Facelift, 2005.
Facebook Profile Page, 2006.
Facebook Profile Page, 2007.
Facebook Profile Page, 2008.
Facebook Profile Page, 2009.
Facebook Profile Page, 2010.
Facebook Profile Page, 2011.
Facebook Profile Page, 2012.
Facebook Profile Page, 2013-2014.
Facebook Profile Page, 2014-2015. Facebook updated both the newsfeed algorithm and the privacy settings.
The Original Facebook Group Page, 2004. Before people realized how awesome pictures are.
Courtesy of Facebook
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Facebook Chief Operating Officer Sheryl Sandberg attributes the company's fast advertiser growth to the streamlined ad products in particular. “A couple years ago, our offering was, ‘Do you want to become a Facebook advertiser?’ That sounds complicated,” Sandberg says. “Now you do a post, and we ask, ‘Do you want to promote this post?’ That’s a pretty easy on-ramp to being an advertiser.”

Though Facebook likes to say its ads are effective because of the amount of data it has about its users, Forrester researcher Nate Elliot says advertisers are actually attracted to the platform mostly because of the sheer number of people using it: 1.3 billion. Citing surveys of marketers, Elliot says Facebook ads have not been found to be particularly more effective than other online ads.

“Facebook knows more about its users than likely any other company in history,” he says. “For its ads to work only about as well as the ads on Yahoo or the ads on a random online network is a bit damning.” Facebook says that in an internal study of 20 retailers, it found a 2% average increase in offline sales for shoppers who were shown a Facebook ad compared to those who were not.

One thing is certain: marketers are continuing to buy them, pumping money into Facebook's coffers. The company generated $3.8 billion in revenue in the fourth quarter of 2014, a new high. That came almost entirely from advertising. And there are plenty of potential advertisers that remain untapped—Facebook says it hosts a total of 30 million active small business Pages, up from 25 million in November 2013.

Owners of these Pages are increasingly coming to terms with the fact that they’ll have to pay to have their posts seen by many users. Facebook has been ratcheting down the reach of non-paid posts, while it tweaked its News Feed algorithm in January to cut down on promotional posts.

The company is pivoting to promote Pages as a free, simple alternative to a hosted website rather than a free way to get into users’ News Feeds. Nearly a billion people visited Facebook pages directly in October, the company says. “While organic distribution has gone down, as more people have come on the platform, it’s still really the only organic distribution or free distribution that small businesses can get that I’m aware of," Sandberg says.

However, Elliott warns that Facebook could change the design or utility of Pages at any moment. That means a company could spend time and energy building a Page, only for its efforts to become less valuable down the road.

As for Facebook's future, the company is continuing to push its video product, noting that 800,000 small businesses posted videos in September 2014. The company is also experimenting with new presentation formats for Pages, such as showing dinner menus or items for purchase on restaurant and retailer's Pages. As long as users’ eyeballs are glued to Facebook, advertisers large and small will be there too.

“They’ve improved the creative formats and they’ve improved the forms of targeting that are available to marketers as well,” Elliott says. “They still have a lot of room to grow on both counts.”

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