Facebook advertising questioned ahead of IPO

A major advertiser has cast doubt over the value of advertising on Facebook, just days ahead of the company’s multibillion dollar stock market debut.

General Motors plans to pull its advertising from Facebook, with a source familiar with the matter saying the carmaker found the social network’s ads had little impact on consumers.

The decision by GM, the third-largest advertiser in the US, marks a highly visible crack in Facebook’s strategy and underscores doubts about whether advertising on Facebook works better than traditional media.

“This does highlight what we are arguing is the riskiness of the overall Facebook business model,” said Brian Wieser, internet and media analyst at Pivotal Research Group.

There will be marketers who are challenged to prove the effectiveness of the marketing vehicle

“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.”

For now, these worries do not appear to be impeding strong investor demand, with Facebook increasing the size of its offering by 25% to raise about $15 billion. Facebook is expected to start trading on the Nasdaq on Friday.

GM said it would still have Facebook pages, which cost nothing to create and run, to market its vehicles and added that it is not unusual for it to move spending around various media outlets.

“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.

Facebook declined to comment on GM’s move.

Ford focus

Concerns about advertising on Facebook are not confined to GM, with an executive at another large consumer products company saying it was hard to know if it is worth the money spent.

“Is it just a shiny new object, or is it a real value proposition?” said the executive, who asked not to be identified.

But Ford said it was committed to advertising on Facebook and was boosting its spending.

“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.”