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
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.