GM Says It No Longer Plans to Advertise on Facebook
Facebook Inc. (FB)’s loss of paid advertising from General Motors Co. (GM), the world’s biggest automaker, may spur other marketers to reconsider ads on the site and hamper sales growth just as the social network debuts as a publicly traded company, an analyst said.
If auto ads, generally among the most effective online promotions, fail on Facebook, then major advertisers including AT&T Inc., Procter & Gamble Co. and American Express Co. may follow GM’s lead and curb spending on the site, said Carlos Kirjner, an analyst at Sanford C. Bernstein & Co. in New York.
“The revenue loss is insignificant, but the fact that one of the largest brand advertisers in the country sees Facebook as ineffective suggests others may do so,” Kirjner said in a research report. “One can plausibly infer that what GM found out, others will too, making it harder to make a bull case for revenue growth based on the presumption that there is high return on investment from social advertising to brand advertisers.”
Facebook last week said growth in advertising sales isn’t keeping pace with gains in users, many of them logging on from mobile devices. GM said yesterday it was halting display ads on Facebook, while maintaining brand-promotion pages. Facebook is depending more on brand pages as paid ads prove less effective, said Rebecca Lieb, a digital media analyst at The Altimeter Group in New York.
“There are certain applications we find to be much more lucrative, much more beneficial than others,” Dan Akerson, GM chief executive officer, said in an interview for Bloomberg Television’s “Street Smart” on May 14. “We have a Facebook account and we try to steer customers that are interested in the company to a number of digital media, Facebook being one of them.”
GM spent $10 million for paid ads on Facebook last year, according to a person familiar with the situation who declined to be named because the information isn’t public.
Facebook plans to raise as much as $16 billion through an initial public offering, the biggest ever for a technology company. Its shares, to be offered at $34 to $38 each, are set to price tomorrow and begin trading under the symbol FB on the Nasdaq Stock Market the following day.
Companies are struggling to measure the effectiveness of paid ads on Facebook because it’s not as easy to track as a 30- second spot on television, said Debra Aho Williamson, an analyst at EMarketer Inc.
On Facebook, ads are sold for brand pages, sponsored posts that appear on user’s news feeds, and other formats. Facebook is trying to come up with a measurement for its ads that is as simple to use as TV ratings, she said.
“It’s difficult,” David Matathia, director of advertising at Hyundai North America, said in a telephone interview. “There are extra levels of complexity to it, but we find a way to make it work and we’ve had some positive results.”
Hyundai directs around 25 percent of its advertising budget toward online media, which includes Facebook, and is looking to increase spending on social networks, he said. Hyundai spent $679 million on U.S. advertising in 2011, according to ad tracker Kantar Media.
GM plans to stop advertising on Facebook mid-year, Pat Morrissey, a company spokesman, said in a telephone interview today. About 25 percent to 30 percent of the company’s advertising spending is on social, digital and online media, he said. That’s about 3 percent more than the automaker spent last year.
The decision to cut Facebook ads came as part of a regular spending review, he said. “We will be re-evaluating Facebook in the future,” Morrissey said.
The timing makes a statement, said Lieb, the digital media analyst at The Altimeter Group.
“There must be a problem, disagreement or vendetta for GM to come out this publicly and openly,” she said.
Outside of Facebook, General Motors spent $1.78 billion on advertising in the U.S. in 2011, in third place after AT&T and Procter & Gamble, said Jon Swallen, head of research at Kantar Media. Facebook executives have spent more than a week pitching the IPO across the country, trying to convince potential investors that the company can make money off its more than 900 million users.
GM spent too much managing its brand pages and not enough on advertising, according to Hussein Fazal, chief executive of AdParlor, a Toronto-based startup that manages ad purchases on the social network for marketers and agencies. The automaker spent about $3 on brand pages for every $1 on paid ads.
“That ratio is all wrong,” Fazal said in an interview. “The majority of that spend should be going towards ad buys.”
Other automakers, like Ford Motor Co. (F) and Subaru of America Inc., say they’re sticking with Facebook.
Annie Ta, a spokeswoman for Facebook, declined to comment. Mark Siegel, a spokesman for AT&T, and Sarah Meron, a spokeswoman for American Express, didn’t immediately return calls for comment. Procter & Gamble does pay for ads on Facebook, said spokesman Paul Fox, who declined to comment on future plans.