With some 900 million user accounts, Facebook would seem to be the perfect venue for advertisers. The question is, despite the amount of time people spend logged on, posting updates, chatting with friends and sharing pictures, how much does the advertising that has made Facebook a multibillion-dollar concern in a short eight years really move products?
Not enough, the nation's leading automobile manufacturer has apparently concluded. In its case, paid advertising on the world's biggest social network hasn't justified the cost.
$10 Million Campaign
The Wall Street Journal reported Tuesday that General Motors was pulling its ads for cars on Facebook, while continuing to use free pages to publicize its products. The paid advertising had reportedly amounted to $10 million.
The decision may reflect a mindset of "why buy the cow when you can get the milk for free?" That could be troubling on some level for the Mark Zuckerberg-founded company as it heads toward an initial public stock offering Friday that hinges on future profitability and revenue growth. The company could be valued as high as $100 billion.
"GM's move is certainly likely to give other advertisers pause, especially given the company's heft, its reputation for advertising savvy and its remarkable return from the grave," Charles King, principal analyst at Pund-IT, told us.
"There have also been numerous similar situations in the past, where an initially hot Internet property cooled swiftly -- in some cases, by Antarctic proportions -- when exposed to close scrutiny."
One example, King said, was Second Life, the virtual world created by Linden Research in 2003 that allows users to interact through avatars.
Virtual Showrooms Didn't Pay
"At one point, the site's fast growth and its popularity among the technology elite made it a go-to venue for numerous vendors and manufacturers, many of which built virtual 'showrooms' to market and advertise their goods," King recalled. "Unfortunately for those companies, Second Life never really delivered the benefits or sales opportunities they hoped." Second Life still has an estimated 1 million users.
While it's far too soon to say if Facebook is headed in the same direction, "GM's decision to retreat from a site so widely popular among users and investors is troubling," King said.
GM confirmed the Wall Street Journal's report in a statement to Reuters, saying it periodically reviews all its ad campaigns.
"In terms of Facebook specifically, while we currently do not plan to continue with advertising, we remain committed to an aggressive content strategy through all of our products and brands, as it continues to be a very effective tool for engaging with our customers," GM said.
Reuters said the cost of GM's overall Facebook presence had been $40 million, with the bulk of that for developing content for free pages. Overall, GM spends more than $1 billion per year on advertisements.
Posted: 2012-05-21 @ 5:21pm PT
The reason big companies had a hard time selling stuff in Second Life was because the people there were only interested in what was going on inside the place. The same will happen in Facebook.
Posted: 2012-05-16 @ 10:14am PT
I agree that the the problem is not with Facebook in general, however it is how companies are using this platform for advertising/marketing. The old methods of display/banners never worked very well and they certainly do not work on a platform designed for entertainment and community building. Companies must be more thoughtful with regard to their audience engagement methods on Facebook. In my opinion the answer is real-time (daily) branded content...its relevent, entertaining and highly engaging. I am referring to multi-media content, not textual content. Brands must become content publishers to keep up with the voracious pace of media consumption.
Posted: 2012-05-15 @ 4:27pm PT
Well, yeah, we saw this coming. I'm just surprised more companies haven't stopped spending on Facebook. It's easy enough to have a robust presence there without paying for ads (that don't work). What's scary is what Facebook will have to do next to appease disappointed advertisers in order to appease expectant shareholders. It's really the beginning of the end for Facebook...