Advertisers and Facebook face an uphill battle. But it could be worth it.
General Motors' decision to invest significantly less advertising dollars in Facebook inspired some to suggest that the world's most popular social network needs to grow up.
With its initial public offering, Facebook has gotten flak for its advertising scheme, which critics say is â€śimmature.â€ť Although some say General Motorâ€™s decision to stop advertising on the social network wonâ€™t have an enormous impact on Facebookâ€™s IPO, the motor company has sparked more debate about Mark Zuckerbergâ€™s company.
Facebook rakes in most of its money through advertisers, the companyâ€™sÂ IPO filing confirmed. Last year, 85 percent of its revenueÂ came from ads â€“ about $3.15 billion, some from big-name advertisers including Nike, Ford, and Wal-Mart. But reports say GM wants out after spending about $10 million on the site, not including the $30 million it regularly spends soliciting advertising agencies to create and manage content destined for Facebook.
Some say GMâ€™s decision is indicative of a combination of Facebookâ€™s fad factor, as well as its primitive advertising scheme and fluctuating revenue. The social media giantÂ lost 7.5 percent of its ad revenue in 2012â€™s first-quarter, and half of AmericansÂ think the website is a passing fad. But Zuckerberg and his team have said they are more concerned with staying relevant and connecting users than welcoming advertisers â€“ a business ethic that so far has had positive ramifications.
â€śWe believe that if we build a product where people can connect and can express all the things that they want about themselves, that over the very long term weâ€™ll have a lot of people doing that,â€ť ZuckerbergÂ told Charlie Rose in 2011. â€śAnd theyâ€™ll be very active, and weâ€™ll have opportunities to sell advertising and do all these things and build a great business. But none of that is the leading thing that weâ€™re pushing for.â€ť
Facebookâ€™s push to meet the userâ€™s wants and needs first, rather than build a website primarily designed to attract advertisers, could be its saving grace. Advertisers might be wary as a result of GMâ€™s decision to cut ties with the social network, but its cultural prowess makes it hard to ignore, even if investing is a gamble.
â€ś[GM] will make people rethink how well their investments are working on Facebook but I canâ€™t see a bunch of people following suit,â€ť Peter Kim, chief strategy officer of the marketing firm Dachis Group,Â told Fox Business.
Because they canâ€™t afford to. Although â€śit is very hard to understand the efficacy of what a Facebook like, or fan, or follow is worth,â€ť as Media Kitchen chief digital media officer Darren HermanÂ told The New York Times, they mean something thanks to Zuckerbergâ€™s creative team. Unfortunately for advertisers, somethingÂ isnâ€™t hard currency.
â€śThereâ€™s a lot of potential but itâ€™s not a slam-dunk,â€ť Martin Sorrell, chief executive of WPP Plc, the worldâ€™s largest advertising agency,Â told The Huffington Post.
Whereas advertisers have a solid understanding of avenues like television, where there are definite guidelines in the realm of product placements and 30-second spots, delivering information to social media users is more difficult. But itâ€™s possible that GM and other companies who have reigned in their investments could come crawling back â€“ if anyone discovers the magic equation.
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