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 “immature.” Although some say General Motor’s decision to stop advertising on the social network won’t have an enormous impact on Facebook’s IPO, the motor company has sparked more debate about Mark Zuckerberg’s company.
Facebook rakes in most of its money through advertisers, the company’s IPO filing confirmed. Last year, 85 percent of its revenue came from ads – 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 GM’s decision is indicative of a combination of Facebook’s fad factor, as well as its primitive advertising scheme and fluctuating revenue. The social media giant lost 7.5 percent of its ad revenue in 2012’s first-quarter, and half of Americans 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 – a business ethic that so far has had positive ramifications.
“We 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 we’ll have a lot of people doing that,” Zuckerberg told Charlie Rose in 2011. “And they’ll be very active, and we’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 we’re pushing for.”
Facebook’s push to meet the user’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 GM’s decision to cut ties with the social network, but its cultural prowess makes it hard to ignore, even if investing is a gamble.
“[GM] will make people rethink how well their investments are working on Facebook but I can’t see a bunch of people following suit,” Peter Kim, chief strategy officer of the marketing firm Dachis Group, told Fox Business.
Because they can’t afford to. Although “it is very hard to understand the efficacy of what a Facebook like, or fan, or follow is worth,” as Media Kitchen chief digital media officer Darren Herman told The New York Times, they mean something thanks to Zuckerberg’s creative team. Unfortunately for advertisers, something isn’t hard currency.
“There’s a lot of potential but it’s not a slam-dunk,” Martin Sorrell, chief executive of WPP Plc, the world’s largest advertising agency, 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 it’s possible that GM and other companies who have reigned in their investments could come crawling back – if anyone discovers the magic equation.
Follow us on Twitter @venturenaut for more tech news.