GM to yank $10M in Facebook ads, saying they don't work

The automaker began re-evaluating its Facebook strategy earlier this year. According to the WSJ, it determined that while free marketing works on the site, paid ads don't.

David Hamilton Assistant Managing Editor, CNET News
David Hamilton is the assistant managing editor of CNET News. He has been writing and editing business and tech coverage for about two decades -- the majority of that at the Wall Street Journal in both Tokyo and San Francisco. He is a two-time winner of the Overseas Press Club award and has written for numerous magazines and blogs, including Slate, Science, VentureBeat, CBS Interactive's BNET, California Lawyer and the New Republic.
David Hamilton
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General Motors will pull some $10 million in paid advertising from Facebook, the Wall Street Journal reported, striking a discordant note with the growing public frenzy over the social network's pending IPO.

GM marketing executives apparently started reviewing the company's Facebook strategy earlier this year, and eventually determined that it wasn't getting much mileage out of paid ads, unnamed individuals told the WSJ. The automaker, however, will continue to expand its use of free marketing on Facebook.

Marketing chief Joel Ewanick told the newspaper that GM "is definitely reassessing our advertising on Facebook, although the content is effective and important." In this sense, "content" refers to GM's company page on Facebook and similar promotional initiatives that Facebook permits at no cost to companies.

A source close to the situation confirmed GM's decision to end its Facebook ads to our sister site CBS MoneyWatch. I've reached out to both Facebook and GM and will update if and when I hear back.

[Update: GM confirmed the "gist" of the WSJ story to me. Meanwhile, I heard back from one person familiar with the situation and wrote about it in a new post, "GM and its Facebook ads: The knives are out."]

The automaker's move is probably the last thing Facebook wants to hear right now. The social network is expected to begin trading its shares Friday at a price that could value the entire company at as much as $104 billion. Earlier today, Facebook officially boosted the price range for its offered shares by almost 15 percent, a sure sign of strong initial demand.

GM currently spends about $40 million on its various Facebook initiatives -- but only roughly $10 million of that goes to Facebook directly as ad payments, the WSJ reported. (Those are presumably annual figures, although the newspaper didn't say.) The remainder finances the design and upkeep of GM's other promotional activities on the site, which don't appear to net Facebook a dime.

While the loss of GM's ad dollars won't even amount to a drop in Facebook's bucket -- the site pulled in revenue of $3.7 billion last year -- the loss of the third-largest advertiser in the U.S. is bound to raise some uncomfortable questions about the effectiveness of big-brand ads on the social network.

Business Insider's Jim Edwards notes that clickthrough rates on Facebook ads are dramatically lower than at Google or across the Web at large. Similarly, Facebook has long appeared to be a more welcoming environment for small -- even obscure -- advertisers than for those at huge multinationals.

As Edwards notes:

The other issue is whether Facebook is right for all advertisers. Search advertising -- the kind Google provides -- tends to be more effective on customers who are actively doing pre-purchase research. Facebook, on the other hand, is more of an entertainment medium; no one is shopping for cars on Facebook -- a fact GM seems to have now learned.

Updated 4:04 p.m. PT: Added confirmation of GM's decision to CBS MoneyWatch.

Updated, May 16, 8:28 a.m. PT: Added GM's confirmation and link to a new post about the anti-GM backlash from this story.