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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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