Open ... and Shut Talk about bad timing. Right before Wall Street set up to open the curtain on Facebook's $100bn IPO, General Motors (GM), which spends $40m on its Facebook presence, announced that it's pulling the plug on Facebook advertising. The reason? Advertising on Facebook apparently hasn't worked.
My question: how would GM possibly know?
Or, rather, why would GM think that viewing a car ad on Facebook would immediately lead to a car purchase? That's not what Facebook does. It's not Google, which is set up to match ads to immediate interest in a product or service. Google equals demand fulfillment, which is a big market but relatively tiny compared to the overall advertising market.
Rather, as Facebook has been at pains to tell the world for years, Facebook is all about demand generation. And it's potentially a much more robust way to build demand than traditional advertising mechanisms like TV and billboards, which continue to account for the majority of the more than $500bn spent on ads each year.
In 2011 GM spent $1.1bn on TV advertising, or approximately 25 per cent of its roughly $4bn advertising budget. I suppose those exciting commercials of people driving GM cars must appeal to someone, and likely those living in the American rustbelt, but how can GM be certain so early in its Facebook advertising that it's not at least a fraction as effective as $1.1bn worth of relatively untargeted television ads?
And if GM hopes to dump its $10m in Facebook ad money into other online sites, it has no better options, as Buzzfeed chief executive Jon Steinberg observes:
If you were to leave FB social advertising with its proven top and mid funnel results, where would you go? Banners and pre rolls?— Jon Steinberg (@jonsteinberg) May 16, 2012
Unlike TV and other advertising media, upon which GM happily spends $4bn annually, Facebook gives it a truly different, albeit nascent, advertising experience. Facebook gives advertisers like GM the ability to enter into the social conversation between friends, rather than blaring ads generically on TV and billboards. That market, incidentally, is expected to top $43bn by 2017 - talk about difficulty targeting would-be customers and measuring results.
My hunch is that GM and others have yet to figure out how to target Facebook advertising because they still think in terms of broadcasting their ads, rather than letting them seep into social conversations. They're thinking of Facebook to generate immediate sales, rather than using it to craft a long-term brand. That's understandable, though it's not true of all. Ford, for example, reports great success with Facebook advertising, when mixed with "engaging content & innovation."
But GM isn't Ford and clearly hasn't cracked the code. Which is fine, since even Facebook admits that it's still trying to figure out what to do with advertising.
Perhaps it's wise, therefore, for GM to take a hiatus from Facebook advertising.
Meanwhile, more of GM's customers and prospective customers are joining Facebook, talking about a range of things, including cars. If GM opts not to help shape long-term demand for its products on the world's most popular website, that feels like a very foolish, shortsighted decision.
Despite this apparent setback, Facebook's advertising business will continue to grow. Not that advertising is its only revenue option, or even its best, as The Register's Andrew Orlowski points out. But by opting not to experiment with a comparative pittance of $10m, GM ensures that it's going to be late to the Facebook party while peers like Ford are shifting into high gear on Facebook. ®
Matt Asay is senior vice president of business development at Nodeable, offering systems management for managing and analysing cloud-based data. He was formerly SVP of biz dev at HTML5 start-up Strobe and chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears three times a week on The Register.