GM Dumps Facebook, But Social Media Remains Agency Prize

by Steve McClellan, May 18, 2012, 5:06 PM

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Is there more to General Motors’ decision earlier this week to pull its paid ads from Facebook than meets the eye?

Pivotal Research analyst Brian Wieser thinks so. True, says Wieser, the decision highlights a major concern about the social media behemoth: “Namely that the company is still highly risky.” (You wouldn’t know it from the blockbuster debut of its IPO.)

But Wieser also believes that GM, by leaking its Facebook decision, was sending a message to the broader media company universe. Given the timing of the message, at the start of the upfront season and a decision earlier this year to cancel a big chunk of the TV time it bought during the 2011 upfront, Wieser postulates that GM was signaling that it’s willing “to walk away from any negotiation with any media owner.”

That signal could help improve its bargaining power during future negotiations, he said. “Creating the perception of a credible ability to walk away from a negotiation may irritate media owners and worsen long-term relationships, but it can also result in better pricing outcomes.”

Another takeaway from GM's Facebook decision, per Wieser, is that social media is a highly lucrative business for ad agencies. He notes that while GM pulled $10 million in paid ads from Facebook, it continues to spend about $30 million on maintaining its “free” presence on the site through various Facebook pages and content -- a presence that is maintained by the marketer’s ad shops -- or some of them, anyway.

GM’s 3-to-1 ratio of maintenance spending versus ad spend on the social site is “abnormal” in Wieser’s view. He estimates that for most marketers, the average ratio is closer to 50-50. Still, it's a potential windfall for agencies. 

“If we assume the one-for-one ratio is more likely, and further assume that this replaces media budgets for digital advertising which might have been more like five to one (reflecting 20% of media budgets going to services for other digital activities), we can estimate that the five agency holding companies will generate an incremental 1% organic growth from their Facebook-related activity alone in 2012.”

And in today’s ad economy, that’s a significant -- even material -- contribution to growth.

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