Just days before Facebook's much anticipated initial public offering, one of the largest advertisers in the U.S. has decided to stop advertising on the platform. General Motors will stop advertising on Facebook because it has determined that paid ads on the site are, well, not effective, the Wall Street Journal reports.
According to the Journal, GM still plans to use Facebook as an advertising platform--it will promote its products on Facebook, and continue to build social rapport with its customers via Facebook--it just won't utilize Facebook's paid ads feature. If other Facebook advertisers are paying attention to GM's actions then this could be an issue for social network, which relies almost entirely on advertising sales to turn a profit.
Of course, the WSJ notes that GM only spent about $10 million last year on Facebook ads, which is a tiny fraction of GM's total U.S. ad spending ($1.8 billion), and a tiny fraction of Facebook's total 2011 revenue ($3.7 billion). So GM's pulling out may not affect Facebook's bottom line directly, but it does raise the question--is Facebook advertising worth it?
GM Isn't Alone
Not…really, according to a just-released study by WordStream Inc., a provider of search engine marketing software and services. WordStream has released new research that compares the value of Facebook's ads to Google's Display Network, which is the part of Google that lets companies place ads on Google's related sites, such as YouTube and Gmail.
According to WordStream's research, while both Facebook and Google have huge "potential reach," the average click-through rate on Google's ads is 10 times the average click-through rate on Facebook's ads. In other words, Google's ads are essentially 10 times more effective than Facebook's ads are at getting people to, well, click.
WordStream notes that Google also offers twice as many ad formats as does Facebook, including in-video ads. Google also offers mobile game ads, while Facebook does not yet support mobile advertising at all.
"So far, Facebook's advertising platform hasn't kept pace with the explosive growth of its social network, and it remains to be seen if CEO Mark Zuckerberg even wants to focus on advertising as a source of revenue," Found and CTO of WordStream Larry Kim said in a statement. "In [Zuckerberg's] 2500+ word letter to shareholders this month, he mentioned advertising just once."
Shopping for Friends vs. Searching for Car Deals
Tech company founder and investor Chris Dixon notes, over at his blog, that while Facebook has a "lot of room to target ads more effectively," presumably by utilizing the vast data-mine it's sitting on, ads work "dramatically better" when people have purchasing intent.
In other words, Google's ads work just a little bit better because Google is a search engine--people often use it to search for products and prices. Facebook, on the other hand, is a social network, and most people are not using it to shop around for the best deal.
This revelation--that Facebook's ads may not work as well as we thought--could mean problems for the company down the road. After all, once the company goes public there will be constant pressure to…make more money, and most of Facebook's revenue comes from advertising. Will other advertisers follow in GM's footsteps?