View: ATTENTION FACEBOOK INVESTORS: This GM Ad Cancellation Is Big, Bad...

ATTENTION FACEBOOK INVESTORS: This GM Ad Cancellation Is Big, Bad...

GM Ad Cancellation on Facebook

Bad news for revenue growth that is already decelerating.

In what should come as a shock to potential investors, one of the world's biggest advertisers,

GM

, has announced that it is pulling a $10 million campaign from

Facebook

...because the ads don't work.

The effectiveness of Facebook ads has always been a big question-mark, with some data suggesting that the ads just don't perform well.

According to Sharon Terlep, Shayndi Rice, and Suzanne Vranica of the Wall Street Journal, GM decided to pull the ads after meeting with Facebook executives and coming away unconvinced that they were effective.

GM currently spends $40 million a year on its Facebook presence.

Importantly, however, only $10 million of that spending goes went to Facebook.

The other $30 million goes to pay ad agencies and others to create content for Facebook and maintain GM's pages and presence on Facebook.

In other words, GM has just killed the only part of its Facebook advertising presence that it was paying Facebook for.

Here's the key section of the WSJ article:

Asked about the move, GM marketing chief Joel Ewanick said the auto maker, "is definitely reassessing our advertising on Facebook, although the content is effective and important." Content refers to the unpaid Facebook pages many companies use to promote their products.

GM, started to re-evaluate its Facebook strategy earlier this year after its marketing team began to question the effectiveness of the ads. GM marketing executives, including Mr. Ewanick, met with Facebook managers to address concerns about the site's effectiveness and left unconvinced advertising on the website made sense, according to people familiar with GM's thinking.

Importantly, GM's skepticism about Facebook is not due to a skepticism about digital advertising overall. GM spends about $300 million a year on digital brand advertising--just not on Facebook.

The growth of Facebook's advertising business has slowed sharply in recent quarters, and the business achieved growth of only 37% year over year in Q1.

Advertiser skepticism may be one reason for this.

Business Insider

Google grew much faster than Facebook did at this stage of its growth.

Although some people are convinced that Facebook will eventually be a bigger company than

Google

, there is very little evidence to support this contention. At the same time, there is much to suggest that this conclusion is simply unwarranted:

Facebook is growing significantly more slowly than Google was at this stage of its development Advertising on Facebook, however well-targeted, is like advertising on walls at a party (people are there to socialize, not buy stuff). Advertising on Google, meanwhile, is advertising to people who have explicitly expressed interest in your product (See: "Like Hell Facebook Is Killing Google")

Facebook just rolled out a suite of new impressive-looking ad products, which will include large ads in users' news feeds. These new units seemed to be well-received by advertisers, at least to the extent that they were excited about hearing more about them.

But GM appears to have gone to the trouble to hear a lot about them--and still came away unimpressed.

The loss of a $10 million deal obviously won't dent the ~$5 billion of revenue Facebook is expected to generate this year. But the loss of lots of clients like GM will begin to dent it. And for a company whose growth rate is already decelerating, there's no way this can be construed as good news.

SEE ALSO: Sorry, Facebook Fans, These Numbers Just Aren't That Impressive

Comments

SaJeDoeSaJeDoe
No wonder if you read some between the lines, of the 30 million , a whole chunk probably goes to creating and maintaining a page. Well, everybody on facebook maintains their own, its not that difficult really, unloading some pictures, copy some links, say something stupid. But paying millions for that? no wonder 5/15/12
twosteptwostep
Does anyone actually click on any ads in facebook? It feels like spam to me. 5/16/12
SaJeDoeSaJeDoe
no, not me. Same ads every day. I barely notice them anymore. 5/17/12
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