GM to Pull Plug on Facebook Advertising - 'Reviewing the Situation'

By Peter Bernstein May 15, 2012

Timing as they say is everything in life. Facebook CEO Mark Zuckerberg, albeit ready to become a multi-billionaire several times over by the end of the week, must be wondering about the timing of all of the bad press about the company coming out just days before its IPO. Consider the less than flattering items that have come out in the past few weeks some of which that have been self-inflicted. This includes:

  • Admission in their amended IPO filing that it has limited ads on mobile sites despite the fact that nearly half of its 900 million users access it through mobile devices.
  • Mobile device usage has outpaced the growth in mobile ads for the second quarter which means ad revenue (the big pitch for its lofty valuation) is lagging on a critical platform.
  • Mr. Zuckerberg between his hoodie-adorned appearances and at least consistent disdain for the etiquette usually practiced by those currying favor with Wall Street has painted him as a less than stable leader.
  • An Associated Press/CNBC survey says 50 percent of respondents thought Facebook was a fad that would soon fade and from what they knew the IPO was over-valued —which should be tempered by a granular look at opinions held by older versus younger users with the former much more enthusiastic.

While all of this was certainly problematic, what may have been the most disturbing news was an article posted on the business section of the online version of The Wall Street Journal today titled, “GM to Stop Advertising on Facebook.” It is worth a close read for those with a paid subscription.  

I will not quote in detail from the posting except to pull out a few grabbers.   The third largest advertiser in the U.S. has determined that their paid ads have had little impact on car purchases, thus leading the company to decide it is best to look elsewhere with its dollars while continuing to expand its use of marketing through Facebook's pages, in which marketers can display content at no cost.

GM marketing chief Joel Ewanick said the company "is definitely reassessing our advertising on Facebook, although the content is effective and important."   The article also says, “GM, started to re-evaluate its Facebook strategy earlier this year after its marketing team began to question the effectiveness of the ads. GM marketing executives, including Mr. Ewanick, met with Facebook managers to address concerns about the site's effectiveness and left unconvinced advertising on the website made sense, according to people familiar with GM's thinking.” 

It noted that GM spends about $40 million on its Facebook presence with about $10 million going for paid advertising. It also went on to quote various industry observers about how GM is not the only one looking at the value of Facebook advertising, and that while the audience is too big to ignore there may be better ways to spend marketing dollars and companies are beginning to wonder about both metrics for measuring Facebook effectiveness and what they are getting in terms of return on their investments.

It is called “Social Media” not “Commercial Media”

Yes, the timing stinks. Yes, this is a story for the moment about Facebook, but is it really? It seems that there is real potential for contagion here. A number of trends are at work here. 

Various studies about buying behavior point to the fact that people tend to distrust ads and rely more on friends and reviews from people they do not know when making transactional decisions. This has been the secret behind the success of sites like Amazon and Yelp just to name two. In addition, smartphones are proving to be problematic as advertising vehicles since people tend to view them as a nuisance, don’t want to be bombarded unless there is almost instantaneous gratification, and would like to give advertisers permission to access them rather than be “served up” ads based on the use/misuse of personal information. 

Facebook and others face the potential wrath of users who can register their disgust by not clicking on ads, which seems to be what GM has concluded. There are expectations about user experiences for each mode of media we use and ads on mobile devices do not seem to be in most people’s comfort zones —not now and possibly not ever.

The challenge for those in the social space is that the reason they have attracted so much traffic is because at the end of the day they are social and not overly commercial. That is the ultimately core attraction. However, for those sites to be so accessible to all of us they do have to make money and advertising has been the elixir so far. Nevertheless, there is a level of tolerance that we will put up with when doing something like searching, or even sitting in front of our laptops, that is intolerable when we are on our smartphones. 

This is a lesson to be learned and Facebook and others are going to have to rethink their business models. They need to be, as the evil character Fagan sings in the musical Oliver, “Reviewing the Situation.”  



It is unlikely to impact the price of the IPO, but there is a haunting prospect that this is a replay of the saying from a bygone era that, “What is good for General Motors is good for the USA.” We shall see. 




Edited by Stefanie Mosca
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