updated 02:11 pm EDT, Fri May 18, 2012
Facebook free media push backfired, say sources
The recent decision by General Motors to cease its paid advertising operations on Facebook may have been the result of a failed pitch on Facebook's part to convince the automaker of the efficacy of advertising on the social network. Sources familiar with dealings between the two companies tell Reuters that Facebook's dual pitches—touting both free media advertising and paid advertising—served only to convince GM that its paid ads weren't effective enough to justify the cost.
Facebook and GM representatives reportedly met at Facebook headquarters in Menlo Park, California, to discuss advertising operations. In the meeting, the sources claim, Facebook's team urged GM to pursue a paid advertising strategy coupled with compelling free content posted to GM's Facebook profile. GM's team reportedly found Facebook's paid banner ads unimpressive and too expensive, though, and ultimately decided to pursue only the free content model.
The loss of GM's ad business could have been something of an embarrassment for the social network, as news of the automaker's decision broke in the days before Facebook's initial public offering. The IPO went well, however, netting Facebook $16 billion in initial funding and setting a record among tech IPOs.
Despite the successful public debut, GM's departure could spell trouble for the social network, which has been attempting to assure investors that its ad operations will remain relevant as mobile technologies come to dominate the Web. Recently, an AP-CNBC poll found that only four percent of Facebook users actually click ads they see on the site, while an overwhelming majority do not. Other metrics put Facebook ads at about half the effectiveness of the average targeted ad, and about an eighth of the effectiveness of Google's targeted ads.