GM says Facebook ads don't pay off

YEREVAN, May 16. /ARKA/. General Motors Co. plans to stop advertising with Facebook Inc. after deciding that paid ads on the site have little impact on consumers' car purchases, The Wall Street Journal reports referring to a GM official.

The move by GM, one of the largest advertisers in the U.S., puts a spotlight on an issue that many marketers have been raising: whether ads on Facebook help them sell more products. 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.

Executives have spent the last two weeks trying to convince investors that its advertising business makes it worthy of a sky-high valuation.

GM will continue to promote its products on Facebook, but without paying the social-media company, the GM official and other people familiar with the matter said. Many companies maintain free Facebook pages.

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% fr om the previous three months. Facebook blamed "seasonal trends" for the decline, as well as a greater number of users from outside the U.S., wh ere ad rates are lower.

GM spent only about $10 million last year to advertise on Facebook, according to people familiar with the matter. That is a fraction of GM's total 2011 U.S. ad spending of $1.8 billion, according to Kantar Media. It is also a tiny share of Facebook's total 2011 revenue of $3.7 billion, most of which was advertising sales.

GM is the third-biggest advertiser across all media in the U.S. after Procter & Gamble Co. and AT&T, according to Kantar.

The auto maker's marketing chief, Joel Ewanick, said the company "is definitely reassessing our advertising on Facebook, although the content is effective and important." Mr. Ewanick has spent the last year restructuring the Detroit company's marketing operations in an effort to cut billions of dollars in costs.

Content refers to the unpaid Facebook pages GM and other companies use to promote their products. GM spends about $30 million on content created for the site, including on agencies that manage the content and daily maintenance of GM's pages, people familiar with the figures said.

GM started to re-evaluate its Facebook strategy earlier this year after its marketing team began to question the effectiveness of the ads, the people said.

Mr. Ewanick and other GM marketing executives met with Facebook managers earlier this year to discuss their concerns. But the auto executives left unconvinced that advertising on the website made sense, according to people familiar with GM's thinking.

Journal Community

"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.-0-