As Facebook approaches D-Day for its initial public offering (IPO), news has broken that General Motors (GM) has pulled all of its advertising from the social network, due to a lack of effectiveness.
GM is the third-largest advertiser in the US, and has confirmed it will maintain its Facebook pages (for which no fees are charged), but it will not continue with any advertising on the platform.
While the $10 million in advertising that Facebook will lose from GM is unlikely to dent the company's bottom line, analysts say what is more significant is what the news says about the overall effectiveness of Facebook Ads. While mobile has been constantly spoken of as a potential stumbling block for the social network, it may be Facebook's advertising model as a whole that needs attention.
In the run up to Facebook's IPO, Wordstream has published an analysis of Facebook's performance compared to that of search giant Google. While Facebook does not publish its average click through rate (CTR), independent analysis of more than 11 000 Facebook campaigns showed the social network has a CTR of about 0.051%.
According to the statistics, this is almost 10 times lower than that of Google's display ad network, which has a rating of 0.4%. The report notes that depending on targeting options, Google's CTR can be up to 36 times higher.
Social mission
The same report quotes Facebook CEO and founder Mark Zuckerberg from his letter to shareholders for the company's official S1 filing: “Facebook was not originally created to be a company. It was built to accomplish a social mission - to make the world more open and connected. Simply put: we don't build services to make money; we make money to build better services.”
Forrester analyst Nate Elliot noted in a blog post that Facebook's valuation is based on its strong history of innovation. “As good as Facebook has been at evolving to serve consumers, that's how bad it's been at serving marketers,” says Elliot.
According to Elliot, Facebook has lurched from one advertising model to the next over the last five years. “One global consumer goods company told us recently that Facebook was getting worse, rather than better, at helping marketers succeed. And 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,” says Elliot.
Looking elsewhere
According to Elliot, marketers shouldn't count on things improving anytime soon. “We wish we could predict this IPO would serve as a new beginning for Facebook's marketing offering, and that a new focus on becoming a grown-up business would inspire the company to put even half the energy into serving advertisers that it does into serving users.
“But we doubt Zuckerberg's going to wake up any day soon having acquired a taste for advertising, or even a proper understanding of it. And so every day more smart marketers are going to wake up and look for other places to dedicate their social resources.”
As the hype continues to grow around Facebook's IPO, and discussions of a potential bubble do the rounds, the Associated Press and CNBC conducted a poll to assess public opinion on the matter.
Of the 1 000 US respondents, 46% said they think Facebook is a passing fad that will fade away as new services emerge. Forty-three percent said the site is here to stay. When asked whether buying Facebook shares would be a good investment, 51% said it would be, while 31% disagreed. Notably, 57% of all respondents said they never click on ads or sponsored content on Facebook.
According to its latest filing, the target price range of Facebook shares has been raised to $34-$38 in response to demand. Zuckerberg is expected to ring the Nasdaq bell from Facebook's Menlo Park headquarters on Friday.
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