Ahead Of IPO, GM Drops Facebook Ads; Forrester Warns Other Companies May Follow

It couldn’t have happened at a worse time for Facebook, which has its initial public offering of stock later this week. General Motors has decided to stop advertising on the social networking giant, citing concerns about the site’s effectiveness. Meanwhile, a Forrester analyst says other companies are having doubts

The GM news comes from a Wall Street Journal report that relies on “people familiar with the matter.” It’s been confirmed by GM itself in other stories, such as at The Guardian.

According to the story, the automotive company will still maintain pages on Facebook — on which it spends $30 million annually. Most of that dough goes to agencies and staffers who maintain the pages, however, and Facebook doesn’t see a dime for the unpaid service.

The $10 million itself won’t have a significant impact on Facebook, which saw $3.7 billion in revenues in 2011, but what’s more important is what it says about Facebook ads and their effectiveness — or lack thereof.

Do Facebook Ads Work?

The news comes as PPC software company WordStream released an analysis comparing Facebook Advertising and the Google Display Network in which Facebook comes up short, with a click-through rate of only 0.05% as compared to GDN’s 0.4%, according to Webtrends numbers. A lower click-through rate, according to the company, is indicative of a lack of advanced targeting and compelling ad formats that induce viewers to click through.

Larry Kim, founder of WordStream, attributes Facebook’s problems to its relative lack of advertising products and targeting options. “It’s not just connecting with the right people, but also about connecting with them at the right time,” he said, “They really need to build out additional advertising products related to retargeting.”

Also missing: the beautiful immersive ads that carmakers like so much — the ones that make viewers feel like they’re taking tight turns on a cliffside road overlooking the ocean.

Attention Must Be Paid

But automotive advertisers like GM aren’t the only ones questioning the relevance of Facebook advertising. Forrester analyst Nate Elliott, posting on his company’s blog, wrote: “One global consumer goods company told us recently that Facebook was getting worse, rather than better, at helping marketers succeed. And companies in industries from consumer electronics to financial services tell us they’re no longer sure Facebook is the best place to dedicate their social marketing budget — a shocking fact given the site’s dominance among users.”

The advertising community, like the financial community, is telling Facebook CEO Mark Zuckerberg loudly and clearly — “give us the respect we’re due”. Wearing a hoodie isn’t necessarily frowned upon in advertising circles, but the fact that Zuckerberg only mentions advertising once in the founder’s letter accompanying his company’s S1 filing… that stings. This following the company’s admission that: “In 2009, 2010, and 2011 and the first quarter of 2011 and 2012, advertising accounted for 98%, 95%, 85%, 87%, and 82%, respectively, of our revenue.”

Advertising Won’t Ruin Facebook

Says Wordstream’s Kim, “They should be more friendly to advertisers and be open to the possibility that relevant, targeted advertising would be of value to their users and not ruin Facebook. That’s a very profound change in mindset.”

Developing more compelling products and cultivating better relationships with marketers isn’t something Facebook can’t do — it just hasn’t shown a great deal of interest in doing so, thus far. But it’s got the audience — 900 million monthly active users can’t be ignored. And marketers — once Facebook is beholden to public shareholders — aren’t likely to be ignored, either.

Related Topics: Channel: Display Advertising | Display Advertising | Facebook: Advertising | Facebook: Business Issues | Social Media Marketing | Social Media Marketing: Advertising | Top News

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About The Author: is executive features editor of Marketing Land and Search Engine Land. She’s a well-respected authority on digital marketing, having reported on, written about and worked in digital media and marketing for more than 10 years. She is a previous managing editor of ClickZ and has worked on the other side of digital publishing, helping independent publishers monetize their sites in her work at Federated Media Publishing.

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  • Terry_Funk

    Do people log onto FB ready to jump on the ads? I guess not. Relying heavily on CTR to assess the effectiveness of ads are a bit outdated, i think.

  • http://twitter.com/antwakefield Ant Wakefield

    A lot of what is advertised on Facebook goes into ‘brand awareness’. Clicking on an AD for GM is great, but the fact that we would still see the ‘brand’ there is fundamental for big brands. Facebook’s ability to ‘mind read’ is a great asset, showing ads depending on what users update about. It freaks people out, but some like it, especially when they are interested in a new topic. Would i like to read an AD about a new car if i posted i was looking for one? Probably. The CTR isn’t the only point here, as the poster above commented…

  • mississaugamovers

    I like this articles.

  • Robbi Drake

    To be frank,  the targeting on Facebook  is laughable at best. The day after Penguin hit, Google’s Facebook page sported an advertisement for a service that offered safe link-building with no footprint.Slightly ironic and certainly amusing. Facebook has not been the traffic driver that many think that it would be for that reason I think, but also, in part, because of what Facebook is to the user–largely an entertainment venue, not a market place, although the social aspects of it do in fact lend a lot of  notice to the brand.
     Insofar as being desirous of having the immersive ads on Facebook, I disagree. I personally think that type of advertising isn’t going to be as effective on Facebook. Facebook is disproportionately female so far as users go and quite frankly GM does not market well to women. The GM advertising isn’t designed to gain either their attention or their trust so while the ads may  not be well targeted on FB, they are also not well crafted by GM. There is some measure of blame for both of them in this failure..

  • http://twitter.com/mwlodarski Michal Wlodarski

    GDN avg CTR at 0,4%. It looks pretty high to me.

  • http://www.kevin-pike.com Kevin Pike

    Sidebar ads are/were just the beginning for FB. The “promoted status update” (aka pay to have my post appear to my followers in their streams) is the next big wave of ads for Facebook… Kinda of like Twitter did with promoted Tweets. 

    Anyway, the intangible thing FB needs to be careful not mess up the “cool” factor. If they want longevity, they can’t bow to shareholders greed and let ads dominate the landscape. People need to always feel it’s about them first – not like a marketing pawn.   

  • LaneMurphy

    I agree that the the problem is not with Facebook in general, however it is how companies are using this platform for advertising/marketing. The old methods of display/banners never worked very well and they certainly do not work on a platform designed for entertainment and community building. Companies must be more thoughtful with regard to their audience engagement methods on Facebook. In my opinion the answer is real-time (daily) branded content…its relevent, entertaining and highly engaging. I am referring to multi-media content, not textual content. Brands must become content publishers to keep up with the voracious pace of media consumption. Full disclaimer, I am the president of a company called Tauntr Media, we are the market leaders in the production and distribution of “real-time branded content”. We make the content in-house every day for brands and distributed it throughout the internet. While I do not mean for this to be a pitch for our company I feel very strongly that this the solution for advertising/marketing on social platforms.

  • Ivan Strouchliak

    Someone on the inside is trying to lower the stock price down right before the IPO, pulling the strings at GM, and releasing some bad Facebook publicity. 

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