This article originally appeared in the June 2011 issue of Customer Interaction Solutions
When you are about to have one of the largest public offerings in the world – north of $100 billion, and much of the reason for the size of your IPO has to do with advertising revenue, there is nothing worse than having one of the world's largest and most sophisticated advertisers telling you your ads don't work. And that is exactly what just happened to Facebook (News - Alert) when GM pulled the plug on a $10-million ad deal.
To put this in perspective, GM is the third largest advertiser in the U.S., and its budget is absolutely huge. Last year, in fact, it was $1.8 billion. The interesting part of the situation is that even though GM won't be continuing its ad spend this year, it plans on continuing to spend $30 million or so for Facebook content.
What this tells us is Facebook is just becoming a driver of the Splinternet or another Internet which advertisers and developers need to take into account. While having free content is great for Facebook and, moreover, GM will no doubt continue to drive massive web traffic Zuckerberg's way, the challenge becomes how to monetize it all.
Now one could argue that Facebook can just show ads from other companies on all the content GM creates, and it currently does this. The issue worth wondering about is what if other advertisers come to the same conclusion and there are no ads from major companies like Ford or Toyota to show on all the GM content.
Let's further consider GM wastes massive amounts of its ad budget on TV. By waste I mean branding is a very tough business in that it is difficult to target branding ads directly to your audience. In other words, when you see an ad on TV for a Chevy truck – a category that only a percentage of the population would buy – the rest of the ad spend could be considered wasted.
So GM is comfortable with wasted ad spend – most companies realize this is just the way branding works.
But on the web there is more measurability, meaning that GM likely compared its click through rates on Facebook with other sites like Google (News - Alert), etc., and decided there weren't enough people clicking to keep the ad campaign running. Typically the online advertising division of companies is more results-oriented than those in the TV or radio arenas.
Let's remember, people have likened advertising on social networks to an interruption of a conversation between friends, and this GM news seems to echo the sentiment.
Perhaps most importantly, if you had to surmise what sort of ad would be most successful on Facebook, you would no doubt say those targeting consumers – and automobiles would likely be at the top of the list. And here we have this massive consumer automobile advertising company complaining about advertising effectiveness.
Now it is worth pointing out that advertisers use different metrics to measure ad effectiveness. In my career I have seen one company decide an advertising product isn't for them, and their direct competitor loves the exact same product. This happens at trade shows as well where the booth of company A does poorly but company B competes directly with company A and has a full booth of people and signs up for a larger booth at the next event.
So this could be an issue of a single company using measurement tools that put a poor spotlight on Facebook's results.
But it could also be the equivalent of IBM (News - Alert) pulling out of COMDEX and subsequently sinking the largest trade show in the U.S. virtually overnight.
Now I am not trying to be over-dramatic here – Facebook isn't going to go away any time soon. But if this example becomes a trend, it may have to refocus its ad push on advertising outside its network using the rich targeting data it continues to amass.
And while the Facebook IPO seems to be the hottest thing since the launch of the iPhone, it remains to be seen if in one year the stock becomes more like high flyer Google or sinking ship Vonage (News - Alert).
Edited by Stefania Viscusi