GM's exit may signal challenges for Facebook
It remains to be seen whether the social network's efforts to drive user engagement will lead to ad sales.
Facebook seems to have hit yet another hurdle right before its IPO. One of its largest advertising clients, General Motors (GM), has decided to stop advertising on the site. GM said its paid ads on Facebook have little impact on its targeted consumers' purchases. If other advertisers do the same, it may signal challenges for Facebook's ad revenue growth. Currently, text and display advertising is the social network's most profitable and primary business.
Unlike Google's AdWords system, which has a proven value proposition for advertisers, replete with detailed analytics and suggestions to improve ROI, Facebook's advertising system is still a work in progress. However, social advertising may become as lucrative a market as search advertising, or even surpass it in terms of the overall global market size in the coming years, if social networking platforms like Facebook and Twitter are able to demonstrate value to advertisers in terms of ROI.
GM spent nearly $10 million on Facebook advertising last year, which is just a drop in the bucket compared with Facebook's overall ad revenue. GM's departure won't hurt Facebook much. But if this move signals the beginning of a trend and many more advertisers leave Facebook, it could lead to a significant decline in ad revenue growth, which has already slowed considerably, following a hockey-stick growth trajectory.
GM will continue to maintain its pages and online presence on Facebook, but that won't earn Facebook any revenue. Facebook offers brands a chance to increase the reach of their fan pages through advertising, increasing engagement on its platform. While Facebook does offer the highest engagement levels compared with any other online property, whether or not that engagement converts into significant sales to justify increased ad spending by brands on its platform is yet to be seen.
Facebook is the largest social network in the world, with more than 900 million monthly active users. It competes primarily with much smaller competitors like Google+, Twitter, LinkedIn (LNKD) and Pinterest, and with Google (GOOG), Microsoft (MSFT) and Yahoo (YHOO) for online advertising dollars. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
More from Trefis
Facebook, the worst security and best way to let your computer become hacked and controlled by others.
Facebook has no real value, does not really produce anything. People can live without it.
GM is smart to stop wasting marketing dollars here and continue to focus on bringing out better products and actually market to people who work.
Zuckerberg and his co founder should not be exempted from paying taxes. These two gazillionaires need to pony up and pay up.
His co-founder moved to Singapore to avoid paying taxes on his billions.
Facebook is a joke and they invade your privacy by recording your messages and mouse clicks.
It is a poor attempt at communicating.
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