GM Scraps Facebook Ads Stating Ineffective Returns
The hype surrounding Facebook's IPO shows little sign of slowing up, with it still heavily oversubscribed, yet doubts remain over the long-term viability of their commercial model.
Recently it emerged that more Americans access the site via their mobile phones than via their computer, with the mobile version of the site much less commercial than the full version.
A hammer blow was struck for the Facebook advertising model today as car giant General Motors (GM) declared that they were scrapping their Facebook ads because they were not delivering results.
The decision by GM puts the spotlight on the effectiveness of advertising on Facebook. A study by TNS last year found that over 60% of Facebook users didn't want to be bothered by adverts, whilst the click through rate on Facebook adverts is notoriously low, often hitting just 0.05%.
On Friday, Facebook is expected to sell shares in an initial public offering that could put a market value on the company of as much as $104 billion, with executives spending much of the past fortnight convincing investors that it's worth this sky high valuation.
GM has taken the decision that it is better served by utilising its (free) Facebook Page rather than continuing with advertising on the site.
GM's decision raises questions about the ability of Facebook to sustain the 88% revenue growth achieved in 2011. Facebook said last month its first-quarter ad revenue was down 7.5% from the previous three months. Facebook blamed "seasonal trends" for the decline, as well as a greater number of users from outside the U.S., where ad rates are lower.
Such claims are not new however. Earlier this month the US division of Kia Motors questioned how valuable their Facebook ads were, although the company will still increase its spending on Facebook this year.
"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," said Nate Elliott, an analyst at market research firm Forrester, in a company blog post on Monday.
Research earlier this year suggested that most of the value from Facebook advertising comes subliminally, with researchers believing that we are aware of ads that are aligned with our interests, even if we don't realise it.
Is the GM departure a sign that they don't get Facebook or that Facebook advertising really doesn't work?