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.

By Trefis May 17, 2012 9:15AM
TrefisFacebook 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.

Facebook Stock Break-Up

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

May 17, 2012 11:34AM

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.

May 17, 2012 11:13AM
Good move GM.  FB is an over-ratted FAD.  It isn't a real business it is just another web-portal to sell clicks.  They don't produce anything other than another way for already lazy people to stay in touch with friends they haven't spoken to in years.

I don't FB and I won't ever.  I reach out to companies that demand I be on FB to do business with them and let them know that I won't be spending my money with them because of it.

NO WAY this company should be worth millions let alone billions.
May 17, 2012 11:43AM

Face Book ...The new My Space

Not really where I would be looking for an advertisement  or searching to buy something.


Smart move GM

May 17, 2012 11:36AM

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.

May 17, 2012 11:13AM
Facebook is for children and/or adults who are unemployed or bored.  It is a totally worthless site.  I never liked anything about GM but their decision to quit spending advertising dollars on that site was very, very smart.  All these social media sites do is slow down productivity of the lives of people that should be worried about keeping their jobs.  Nobama 2012.
May 17, 2012 11:11AM
I think Facebook's potential as a profit machine is doomed. It's popular and tons of people use it daily, but almost everybody ignores the ads entirely. Search engines are typically used in a different way and the ads are more effective as a result. I just don't see how FB continues to generate significant revenue once advertisers start to realize this truth.
May 17, 2012 10:57AM

Jr. High and High School kids don't buy cars.  Any self respecting adult would not be on facebook.

May 17, 2012 11:37AM
FB is going to fail.  I know it's had a good run...but the best of times are over.  FB to me, is getting so boring. 
May 17, 2012 11:05AM
Not only does Facebook charge a ridiculous amount of money for advertising ($0.50 per click or per 1000 ad views), but it's one of the least effective online advertising portals. AdWords costs me $0.11 per click and generates interest from MUCH better customers.
May 17, 2012 11:02AM
This speaks to the point I wrote on my Blog yesterday regarding the over inflated valuation of Facebook.  I can't for the life of me figure out how net revenue of 250-300 million dollars equates to a market value of 100 billion dollars.  Some one please help me out here.
May 17, 2012 12:20PM
I am a 48 yr old manufacturing engineer who is studying on my spare time to take my Certified Mfg Engineer exam.  All the while my wife cruises FarseBook to get the latest crap on people she could hardly care less about who are all too often posting information that one cares even less about.  FarseBook is a complete waste of time and resources.  As stated by others on this thread, it has no value, it provides no value and it only reduces the value of the people stupid enough to be using it.
May 17, 2012 11:49AM
May 17, 2012 10:35AM

Mostof the people who use facebook to shop are just that price shoppers. Bottom of the barrel customers.


May 17, 2012 11:09AM
I'm using Facebook to sell a warehouse full of Pet Rocks that I inherited. Doing amazingly well!
May 17, 2012 11:32AM
Advertisements on Facebook?  OH! you mean the junk on the side that I never pay attention to...

Force me to look at it, and I'll use FB even less than I do now.  

FB was 'cool' until I realized that the story generally doesn't change; even with 100's of friends, the content that is generally acceptable on FB is rather generalized.


Who am I?  Mid-30's, male, married w/ children, home owner, small business owner... typically the guy who could afford a new GM product.
May 17, 2012 11:04AM
 I guess I can see why GM pulled it's advertising.  I'm in line for a new car. I'm never on facebook.  I'm their marketing target..  Smart move. 
May 17, 2012 11:53AM
FB is like classmate , 2 to 3 years & its old , it was fun at first but on to the next new thing!
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