On May 15, General Motors decided that its return on investment for Facebook ads – a $10 million annual cash outlay – wasn’t floating its boat, so it killed its Facebook advertising campaign. This news came down mere days before Facebook’s IPO, which began with high expectations but ended rather flat. Now, the Huffington Post reports that Facebook may have only itself to blame for its recent trouble.
Cracks in the armor
Experts believe that GM’s decision to rescind all paid Facebook advertising is a sign that big business is having its doubts over whether Facebook is significantly more valuable for advertising than traditional media. Various reports indicate that a meeting took place several weeks ago between top executives from General Motors and Facebook, and Facebook’s representatives were unable to convince GM that Facebook would be able to help the automaker’s sagging online advertising campaign. Facebook reps reportedly spent more time and energy touting the capabilities of its free pages to GM, which is a strange move and didn’t go over well with GM considering that Facebook is now more focused on being a for-profit company than ever.
“It kind of backfires on them in a funny way,” said a source close to the negotiations who did not wish to be identified.
Neither Facebook nor GM offered official comment regarding the content of the meeting.
Capitalizing on the user base
Anonymous inside sources have revealed that GM executives fail to see why GM shouldn’t just continue to spend its online advertising budget on options like Google’s AdSense instead of with Facebook, considering the Facebook track record. According to recently compiled metrics, the Huffington Post notes that paid Facebook ads actually garner only half the clicks per page view when compared with the average website. People are expecting Facebook ad prices to increase with the company’s recent IPO, and more companies are questioning whether the return is worth the expense. For every 1,000 views of an ad on a web page, only once will a consumer click on the advertisement. Facebook’s rate is one in 2,000, while Google’s is 4 in 1,000. Those odds sure say something about a websites advertising value.
“Facebook is good in that an advertiser can target based on age and gender by measuring certain ‘likes,’ but is not connecting with the right audience at the right time,” said Larry Kim, founder and CTO of online ad consultancy Wordstream.
Investors are beginning to voice similar concerns. Does Facebook know how to capitalize on the growing number of users, many of whom access the network via mobile devices, the right way? Free content will certain attract advertisers, but that won’t amount to long-term money-making for Facebook under its current business model. One source suggested that Facebook should feature its paid advertising more prominently, or more impressively than standard free content. As it stands, some have described Facebook ads as looking “kind of meager and perhaps expensive by comparison.”
Not on target
Kim noted that Google AdSense banner ads are more targeted than paid Facebook ads, in that Google’s ads follow the consumer from website to website. General Motors would like to see those kinds of results from its Facebook ad campaign. Currently, the automaker ranks behind Procter & Gamble and AT&T in total ad spending, at $1.1 billion per year in the United States. Of that total, GM spent $271 million on online display and search ads in 2011, Facebook advertising included.
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