GM pulls plug on its Facebook ads

  • Article by: HAYLEY TSUKAYAMA , Washington Post
  • Updated: May 15, 2012 - 9:05 PM

The move gives Facebook a black eye just days before its initial public offering.

General Motors Co. threw cold water on the buildup to Facebook's red-hot initial public offering Tuesday, saying it will stop paid advertising on the social network just days before Facebook's market debut.

The carmaker has found that its paid Facebook ads are not effective enough, a person familiar with the matter said.

"In terms of Facebook specifically, while we currently do not plan to continue with advertising, we remain committed to an aggressive content strategy with all of our products and brands, as it continues to be a very effective tool for engaging with our customers," GM spokesman Greg Martin said. He said the company would continue to maintain a strong presence on Facebook, but without paying to place advertisements.

Facebook declined to comment on GM's media strategy, which was first reported by the Wall Street Journal.

The social network, which has 901 million users worldwide, accounted for 14.6 percent of all Web traffic in 2011, according to a recent report from ComScore. Facebook is expected to make its stock market debut Friday. It said Monday it will price shares between $34 and $38 for a potential valuation of $106 billion.

Facebook relies heavily on advertising to generate revenue, and the company's value could be threatened if other advertisers follow GM's lead, despite its online reach. So far this year, $872 million of its $1.06 billion in revenue came from advertising.

The social network leads the Web in display advertising revenue, according to a February report from the online advertising analysis firm eMarketer, but it is on a pace to lose its lead to Google by the end of the year.

GM is the third-largest online advertiser, according to advertising analysis firm Kantar Media. GM spends $40 million to generate advertising on the network -- $10 million of which goes directly to Facebook, the Wall Street Journal reported Tuesday. GM spokesman Tom Henderson declined to confirm those numbers, but he said that the company devotes between 25 and 30 percent of its advertising budget on Web ads.

While traditional advertising is mainly about raising awareness, a Facebook campaign requires extra effort to build up a fan base, said Rex Briggs, a social media advertising consultant with Marketing Evolutions.

Bill Collins, a spokesman for Ford, said his company is investing more in ads on Facebook and other social platforms. "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."

Forrester Research analyst Melissa Parrish said she "would not be surprised to see other marketers follow" GM's lead.

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