DETROIT General Motors Co said on Tuesday it will stop advertising on Facebook, even as the social networking website prepares to go public.
A source familiar with the automaker's plans said GM's marketing executives decided Facebook's ads had little impact on consumers.
While GM's decision could be an exception in the advertising world, it marked the first highly visible crack in the Facebook strategy, said Brian Wieser, Internet and media analyst at Pivotal Research Group.
"This does highlight what we are arguing is the riskiness of the overall Facebook business model," he said. "It is not a sure thing. It sure looks likely that it will be one of the most important ad-supported media properties, but it's not certain because there will be marketers who are challenged to prove the effectiveness of the marketing vehicle."
Facebook Inc (FB.O), founded eight years ago by Mark Zuckerberg in a Harvard dorm room, is expected to start trading on the Nasdaq on Friday. The world's No. 1 social networking site raised its IPO price range on Tuesday, potentially giving the company a valuation of more than $100 billion.
GM said it will still have Facebook pages, which cost nothing to create, to market its vehicles. GM pays no fee to Facebook for its pages, which allow the automaker to reach consumers directly.
GM said it regularly reviews how it spends its marketing budget and adjusts its approach as needed.
"It's not unusual for us to move our spending around various media outlets - especially with the growth of multiple social and digital media outlets," the company said in a statement.
"In terms of Facebook specifically, while we currently do not plan to continue with advertising, we remain committed to an aggressive content strategy through all of our products and brands, as it continues to be a very effective tool for engaging with our customers," GM said.
NO. 3 U.S. ADVERTISER
GM spends about $40 million on its Facebook presence, but only about $10 million of that is paid to Facebook for advertising, according to the Wall Street Journal which first reported GM's plans to drop Facebook ads. The remaining budget covers the creation of content and the advertising and media agencies involved, the newspaper said.
GM, the country's third-largest advertiser behind Procter & Gamble Co (PG.N) and AT&T Inc (T.N), spent $1.11 billion on U.S. ads last year, according to Kantar Media, an ad-tracking firm owned by WPP Plc (WPP.L). About $271 million of GM's total ad spend last year was for online display and search ads excluding Facebook advertising.
Facebook ads make up a small percentage of GM's advertising budget, but the company said it is committed to the website to market its vehicles.
For instance, the Facebook page for the Chevrolet Sonic small car as of 2000 GMT on Tuesday had more than 423,000 "likes." The first three months of Sonic's marketing campaign which began last October were exclusively digital, with TV ads not running until early this year.
REACHING YOUNGER CONSUMERS
While GM rival Ford Motor Co (F.N) said it was committed to advertising on Facebook, the social media site is just one part of the No. 2 U.S. automaker's marketing strategy.
"You just can't buy your way into Facebook," said Ford spokesman Scott Monty. "You need to have a credible presence and be doing innovative things."
More than 20 percent of Ford's marketing budget is spent on digital and social media, he said. The company launched its new Explorer SUV on Facebook.
Automakers are increasingly turning to social media sites to reach younger consumers on their turf for less than a tenth of the cost of a traditional marketing campaign.
Ford first used social media on a wide scale to promote the Fiesta small car in 2009 in a campaign dubbed the "Fiesta Movement." It spent $5 million on the campaign for the car, which was returning to the U.S. market after roughly three decades.
After the Fiesta campaign, Ford said 60 percent of Americans who said they would buy a small car within two years said they were familiar with the Fiesta. That kind of recognition would cost $100 million through traditional means, the company said.
Most of Facebook's corporate clients, like Ford, are satisfied with the return they get from their ads, said Jason Beckerman, chief strategy officer for Unified, which helps companies analyze the impact of marketing campaigns on social networking sites. In addition to Ford, clients at his firm include German automaker BMW (BMWG.DE), P&G and Microsoft Corp (MSFT.O).
Beckerman, who has worked with Facebook in the past, said companies tend to be dissatisfied when they simply "throw money" at social networking sites. "Without the proper planning and structure of your buys, you are asking for little to no results."
(Reporting By Ben Klayman in Detroit, additional reporting by Deepa Seetharaman and Bernie Woodall in Detroit, Alexei Oreskovic in San Francisco and Jim Finkle in Boston; Editing by Leslie Gevirtz and Matthew Lewis)