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Facebook apparently hasn't experienced any problems convincing investors to put their money into its IPO, but while the social network focuses its attention on Wall Street, it might do well to pay more attention to a nearby street: Madison Avenue.

That's because, according to a Wall Street Journal report, GM, the world's largest car maker, apparently isn't hot on Facebook's paid ads.

In fact, it's so unimpressed that the Wall Street Journal's sources say that the once-troubled automaker "plans to stop advertising on Facebook after the company's marketing executives determined their paid ads had little impact on consumers". Ouch.

The timing is intriguing, and many believe it isn't coincidental. But the news isn't all bad for the world's largest social network: the Wall Street Journal's sources say that GM will continue to invest in its Facebook Pages, which Facebook doesn't charge for -- yet. at least.

That investment, pegged at some $30m, is triple the amount GM is said to have been paying to Facebook directly for advertising ($10m).

While GM's move is a blow to Facebook on the eve of its IPO, and it highlights some of the risks Facebook investors will have to grapple with as the company seeks to live up to its exorbitant $100bn-plus valuation, the real lesson here is that companies need to be vigilant about all of their digital spending, particularly as it relates to new channels like social.

In an effort to be more innovative and catch new trends early on, Madison Avenue is arguably more willing than ever to try new things and get involved with young services developing new ad models. That's certainly a good thing. But at the same time, there's an argument to be made that exuberance (and perhaps fear) has pushed some marketers to treat what should be experimental campaigns as standard digital media buys.

That might work if those campaigns produce an ROI, but as GM apparently discovered, the latest and greatest doesn't always deliver. In the case of Facebook, Forrester analyst Nate Elliott writes, "Companies in industries from consumer electronics to financial services tell us they're no longer sure Facebook is the best place to dedicate their social marketing budget—a shocking fact given the site's dominance among users."

In reality, the shocker isn't that advertisers are questioning their Facebook investments despite its dominance, but rather that they haven't questioned some of their social spend sooner. There have been plenty of reasons to be skeptical about the efficacy of many social ad offerings, and the fact that most users are ignoring often well-targeted but still-annoying social ads is not front-page news.

While GM will continue to invest in Facebook even though it won't be paying the social network directly, it's likely that brands will eventually start to review their 'free' social media efforts too given that the costs of building, growing and managing Facebook Pages, Twitter accounts, and the like isn't cheap either, as evidenced by the fact that GM spends 8-figures doing just this.

So where does this leave Facebook and other social giants as they look to prove their worth as advertising platforms?

Obviously, it's easy to accept that the consumer internet's hottest services are too big to ignore, but when the ROI they deliver is too small to move the needle, throwing good money after bad doesn't a great marketing strategy make.

Patricio Robles

Published 16 May, 2012 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2381 more posts from this author

Comments (2)

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Janek Mikulin, Business Owner and Entrepreneur at Jan Mikulin

An interesting read, with some valid and cogent points. However, I think people are too quick to brand social as a poor space for advertising and marketing ROI.

There are two counters that I think warrant some thought...

1) How effectively are brands and agencies measuring the ROI of such spends?

2) What are the comparable ROIs on other platforms?

In terms of answering the first question, I think many people are guilty of measuring what's available, rather than what's important to their business. The number of 'likes' may be easy to measure, but what impact does it have on your business? What is the length of your purchase funnel? What is the aim of the campaign? It's all well and good saying that facebook ads don't equate to sales, but for big ticket items like cars, someone isn't going to click to buy a new car based on a facebook ad. They may, however change their perception of your brand as a result; engage with you more deeply and build a relationship that will one day result in a sale; or even change the way they talk about your brand with their peers.

These possibilities are, without a doubt the long-tail end of the purchase funnel, but this is where the measurement and understanding needs to become focussed.

The second question is aimed firmly at more 'traditional' media. How effective is a 30second TV ad in generating sales of a car? I see the vehicle from several different angles, but I can't engage directly with it. I can't ask the TV questions about the vehicles specs or options. I can't explore the inside of the car virtually. In fact, I can do absolutely nothing WITH the ad, other than perhaps remember a part of it later in the day.

I think the biggest challenge we face in the industry is an attitudinal one. We need to stop looking for the magic bullet that solves all our problems in one fell swoop and recognise that consumers have evolved and that there are many more factors involved in most purchase decisions that we like to think.

When we start genuinely engaging in discourse with our customers, that's when we start being able to understand them and give them what they want. It's a harder task, but the only one that will give meaningful results with longevity.

about 4 years ago

Simone Kurtzke

Simone Kurtzke, Lecturer in Digital Marketing at Robert Gordon University

Surely it depends on HOW you advertise on Facebook? It's never struck me as a particularly good idea to just use it for paid display advertising to an external site.

I fully agree though that brands ought to look at the no. of Facebook pages they run and the associated cost (human resource, spend, etc.).

Not mentioning any names but do you really need (e.g.) 3x English-language Facebook pages: one for the US market, one for the Republic of Ireland, and one for the UK?

Not really. Such brand Facebook page names also look exceedingly stupid when in print / offline.

about 4 years ago

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