Case Study - General Motors Facebook Ads – Temporarily stops Paid ads, free pages to continue

General Motors (GM), the third-largest U.S. advertiser will continue to spend roughly US$30 million (includes spend on multiple ad agencies that create and manage content) on maintaining its “free” presence on Facebook through pages and content but GM announced pull back of US$10 million spend in paid ads from Facebook. GM’s Facebook spend is minuscule compared to its $1.1 billion spend on U.S. ads in 2011 and it’s spend of about $271 million (25% -30% of total ad spend) on online display and search ads excluding Facebook advertising. The reason for stopping paid ads on Facebook is due to the little impact that paid ads are having on consumer’s purchase of cars but GM said it will continue to promote its products on Facebook, but without paying Facebook. GM’s decision will also not have major affect on Facebook ad revenues as Facebook's 2011 advertising sales revenue was around US$3.15 billion and revenue from GM was tiny. Another reason for GM cutting down its Facebook paid ads spend is because of the restructuring of GM’s marketing operations for reducing billions of dollars in marketing costs and targeting to save US$2bn over the next five years. Some people believe GM did not believe in the effectiveness of advertising on social networking sites and it is using traditional measurement tools to measure the effectiveness of social media ads which is not convincing as GM being a top ad spender knows how to measure effectiveness.

According to some sources Facebook has to blame itself for GM pull back of paid ads on its site as Facebook officials' failed to convince top marketing executives at GM of the benefits of  paid ads at a meeting that was held couple of weeks before GM’s paid ads pull back announcement. Moreover Facebook officials emphasized the advantages and impact of free posted content on their website which made paid ads spend unnecessary and also suggested GM cut down its number of ad agencies it engaged to manage its ad spend and content on Facebook. Facebook's "click-through rate", also known as "clicks per page view," is half the average for ads on the Internet and the average targeted ad on the Internet is "clicked" on by a consumer once every 1,000 times it is viewed while Google's is 4 in 1,000 according to Larry Kim, founder & CTO of Internet ad consultant Wordstream. Google AdSense ads are more effectively targeted than Facebook ads and GM preferred to stick with them. GM spent more money on creating and managing content rather than advertising and the ratio of spend is $3 on brand pages for every $1 on paid ads. Also Facebook is expected to increase its ad rates after the IPO. Facebook sells ads for brand pages, sponsored posts that appear on user’s news feeds, and other formats like called "sponsored stories," that allows advertisers to pay to republish positive Facebook messages that people had posted about their brand.

But the fact is Facebook is struggling to develop a scalable revenue generator like Google AdSense and in the past few years Facebook attempts for successful ad model for marketers and businesses included charging marketers to host brand pages, featured banners ads on pages from MSN ad networks and Facebook Beacon system, that sent data from external websites to Facebook, for the purpose of allowing targeted advertisements and allowing users to share their activities with their friends. In March 2012, Facebook announced Premium, a new suite of products for marketers designed to leverage the social network’s access to friends and friends of friends. Facebook has been gradually increasing its ad revenues and recommends to marketers that unpaid content like brand pages and building a base of online fans who like a brand is successful and users will know about the unpaid content easily only when paired with paid advertisements like display ads and its "sponsored stories." Facebook said in March, for example, that only 16% of a brand's fans will see a post about the brand without paying. Facebook will use technology to ensure that the Paid ad is seen by 75% of those who click a company's "like" button on its website. Another problem area for Facebook is the mobile platform as most of its users are logging in to the site through their mobiles and the company doesn’t have a viable business model to generate revenues on the mobile devices. Facebook need to convince the marketers and businesses about paid ads, their effectiveness and also need to develop a measurement tool for measuring the effectiveness and reach of the ads that is as simple to use as TV ratings.

Facebook has more than 900 million users as of March 2012 and businesses cannot ignore such a huge platform for promoting their products and services. Realizing this fact many businesses across the globe spent millions of dollars and hired digital ad firms for creating content for their Facebook pages in order to stimulate buzz, which advertisers liken to word-of-mouth marketing campaigns. GM decision of cutting its Facebook paid ads spend is not a permanent decision and the company plans to revive it’s spend once it feels the Facebook ads are effective and reach the targeted customer who will spend in buying cars. GM is not alone in this regards as some of the companies too are apprehensive as quoted by Forrester analysts in their blog post. Businesses, Marketers and Analysts are all demanding Facebook to improve its paid advertising model, make its platform more attractive and post IPO the shareholders are also looking for significant improvement in the company revenues and business model which will increase the profitability. According to Facebook most of the businesses and marketers are still learning and experimenting with the best ways to leverage Facebook to create more social and valuable ads. Some of the GM competitors like Ford are supporting Facebook as they are effectively using the site for various promotional activities but Facebook needs to focus on improving its business model and ad platforms to attract more businesses and make sure that more businesses follow General Motors suit calling it an ineffective platform.