Ahead of I.P.O., G.M. to Quit Advertising on Faceb
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Ahead of I.P.O., G.M. to Quit Advertising on Facebook
Just days before Facebook is scheduled to hold its first public stock offering, which could value the company at more than $100 billion, one of the country’s largest marketers has decided to remove its advertising from the social network.
General Motors, the third-largest advertiser in the United States, decided to discontinue its Facebook advertising, worth about $10 million annually, after a routine review of how and where it spends marketing money, said Tom Henderson, a spokesman for the automaker.
“It’s not unusual for us to move our spending around various outlets, especially with the growth of social and digital media outlets,” he said, adding that the company is “making adjustments as we need to.” General Motors’ decision was first reported by The Wall Street Journal.
For Facebook, which reported $3.7 billion in revenue in 2011, the loss of $10 million in ad dollars does not represent a financial disaster but it is a public-relations headache coming so close to the company’s eagerly anticipated public offering. Facebook and investors are expecting a large valuation based primarily on its potential to draw advertising in the future; its advertising revenue had been growing quickly but remains small compared with competitors like Google.
In a public filing last month, Facebook said that its first-quarter ad revenue had actually declined to $872 million from $943 million in the previous three-month period, although it was up almost 37 percent from $637 million for the same quarter from the previous year.
Several analysts believe that GM’s decision will cause other marketers to take at least a second look at their own Facebook strategy. Melissa Parrish, an analyst at Forrester, wrote in an e-mail that the move would force Facebook to listen more closely to marketers.
“My colleagues and I have spoken with several other advertisers who were already thinking of putting their dollars elsewhere,” Ms. Parrish said. “Now that G.M. has done so in such a large and public way, many of the fence-sitters will know that they’re not alone in their disappointment about their results.” According to Forrester, Facebook made just under $4 in revenue per user in 2011.
General Motors, which spends about $3 billion on advertising annually worldwide, has advertised on Facebook since 2008. In January, G.M. consolidated its media planning and buying operations, giving Carat, part of the Aegis Media unit of the Aegis Group, the job. The automaker will continue to have a presence on Facebook with free content like the existing brand pages. Mr. Henderson said Facebook “continues to be a very effective tool for engaging with our customers.”
A person briefed on the discussions between the companies said that G.M. spent a total of about $40 million on Facebook annually, most of that on managing its own presence and developing applications. This person, who asked not to be identified discussing private negotiations, said that Facebook had advised the company to spend less money on developing applications and more money on advertising and promotion. “They didn’t use paid media to get the message out,” the person said.
Debra Aho Williamson, a principal analyst at the research company eMarketer said that “if G.M. is spending $40 million year and $30 million of that is going toward managing its page, that’s a lot of money.”
“The advertising on Facebook helps brands extend their message,” said Ms. Williamson. “The challenge for G.M. is, can they do that without actively marketing and paying Facebook for advertising?”
When Facebook held its first advertising conference in February, the reaction from marketers was mixed. Rumors that Facebook would announce its own ad network, allowing advertisers to buy inventory on the site in real time, did not materialize. Instead, advertisers were given more places to put their ads, including on the log-out page and in a user’s news feed.
Ben Winkler, the chief digital officer at OMD, an agency in the Omnicom Media Group, said that while Facebook was a great mechanism for communicating and sharing content, it did not provide advertisers with the amount of data and analytics that they want from the site. “It will cause a ripple effect,” Mr. Winkler said about G.M.’s pullback. “It will make advertisers consider what they are spending.”
One company that disagreed with G.M.’s decision was its Detroit rival, Ford. In a statement, the company said, “We’ve found Facebook ads to be very effective when strategically combined with engagement, great content and innovative ways of storytelling, rather than treating them as a straight media buy.”
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