With timing that can only be described as “bad” for Facebook, General Motors has decided to pull its paid advertising from the social network, according to the Wall Street Journal.
The move comes just a couple days before Facebook’s initial public offering, scheduled for Friday, May 18. The question now is, how will Facebook respond? And will other advertisers
follow GM out the door?
According to WSJ, GM determined that “its paid ads [on Facebook] had little impact on consumers’ car purchases,” which is pretty much saying they
failed completely and utterly. It’s worth noting that GM’s complaint was not with, say, the quality or quantity of data and analytics for its advertising provided by Facebook, which,
given GM’s investment -- $10 million per year -- must have been fairly substantial. The data and analytics were presumably there; the ads just plain didn’t work.
This is food
for thought, and not just for potential investors ahead of Facebook’s IPO. Judging by statements from a number of analysts, Facebook has yet to prove itself as a marketing tool -- which is at
the core of its business model and the main grounds for valuing the company.
The skepticism about Facebook ranges across advertising disciplines, including the mainstays of search and
display; marketers working in both categories have long bemoaned low click-through rates. Indeed, even before the GM announcement Forrester analyst Nate Elliott wrote this damning judgment:
“Marketing on Facebook doesn’t work very well, and marketers can’t count on things improving anytime soon. We wish we could predict this IPO would serve as a new beginning for
Facebook’s marketing offering, and that a new focus on becoming a grown-up business would inspire the company to put even half the energy into serving advertisers that it does into serving
users. But we doubt Zuckerberg’s going to wake up any day soon having acquired a taste for advertising, or even a proper understanding of it. And so every day more smart marketers are
going to wake up and look for other places to dedicate their social resources.”
With this sentiment in mind, it’s also worth noting that Facebook’s growth prospects are
apparently less promising than they first appeared. Growth slowed from 2011-2012, dipping from 55% year-over-year in the last quarter of 2011 to 45% in the first quarter of 2012, according to the
Financial Times. And eMarketer recently revised its forecast for Facebook’s 2012 advertising revenues down from $6.1 billion to $5.06 billion -- that’s a $1 billion+ reducation, or
17%.