Facebook's business model under fire as GM scraps ads

New York/San Francisco: General Motors plans to stop paying for ads on Facebook in a move that raises questions about the social network's business model ahead of its highly anticipated initial public offering.

"We currently do not plan to continue with advertising but we remain committed to an aggressive content strategy," a person at GM familiar with the situation said, confirming a report by the Wall Street Journal.

GM said it would continue to expand its use of Facebook pages for its brands, which companies can set up for free.

GM spent $1.83 billion (Dh6.72 billion) in advertising in the US last year, according to Kantar Media, the ad-tracking group, putting it in third place behind Procter and Gamble and AT&T. Earlier this year, it said it would review its advertising strategy in an effort to save $2 billion over the next five years.

According to some estimates, GM spends about $40 million on its Facebook presence, of which $10 million goes to advertising. GM would not confirm those figures.

The move underscores a potential problem for Facebook, which has been facing an increasingly loud chorus of critics over its advertising offerings. Even as companies have developed their free presences on the site, some have been reluctant to commit advertising dollars, and ad growth has slowed.

Mixed sentiment

Nigel Morris, chief executive for the Americas of Aegis Media, which holds GM's $3 billion global media buying and planning account, declined to comment on GM's decision but said: "Most advertisers are increasing their spending [with Facebook]. The big issue is, are they increasing it at the rate Facebook would like?"

One person familiar with GM's move said Facebook had not done a convincing job of demonstrating what returns the new forms of advertising for its brands would generate.

"There's mixed sentiment" about Facebook among advertisers, one media buyer said, noting that he had not seen other clients halt spending as GM planned to.

"Facebook hasn't stumbled yet upon a truly scaleable revenue generator," he said. "What Google had was an unbelievable revenue engine, which said that if you put this amount of money in you'll get this much out."

Offering an alternative view, Dean Evans, chief marketing officer for Subaru of America, said the car company was spending more than $5 million a year on Facebook advertising, and intended to increase that in the next year. "We like what we're seeing," he said.

Subaru uses Facebook primarily as a public relations channel as opposed to a sales channel, using a mix of its paid and unpaid advertising formats. "We know that over time more happy customers that spread the word about your brand will equal sales. Do we know how to measure that accurately today?

Scathing blog

"We're getting closer. And we're confident that sales are in there. But exact dollar spent matched to a sale, we haven't mapped that fully yet," he said.

Analysts at Forrester Research penned a scathing blog, accusing Facebook of not taking marketing seriously, making only "tiny" advancements in its ad model, and standing in the way of marketers who wanted to measure the performance of their campaigns.

Other analysts suggested it was too soon to judge Facebook, as the company was still maturing and weaving together the different paid and unpaid parts of its total social advertising concept.

"This is the next phase of marketing and advertising, and I don't think GM, Facebook, or any other company, is quite there yet, because it's still emerging," said Rebecca Lieb, an analyst with the Altimeter Group.

Facebook declined to comment.

— The Times Newspapers Limited, 2012