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Should Investors Be Concerned If More Advertisers Abandon Social Networks?


GM's announcement that it is cutting Facebook advertising has many rethinking their assumptions.

MINYANVILLE ORIGINAL This morning, General Motors (GM) dropped a bombshell, announcing that it will pull $10 million in advertising from Facebook (FB). Not only does this translate into terrible news for a company that's about to make an initial public offering at a $100+ billion valuation, it also forces market watchers to examine whether the social network can hold on to marketers, and continue to grow revenue.

After GM booted Facebook, it's easy to imagine an apocalyptic scenario in which other advertisers suspect there is something up and start to wonder why they are giving Facebook money. GM will continue to spend $30 million per year promoting its brand on the social network, but Facebook isn't going to get a dime from it directly. If GM can do it, why can't everyone?

GM's archrival, Ford (F) quickly took to Twitter this morning to lambaste GM's decision. Ford said:

Ford is obviously not alone. BIA Kelsey, a consultancy, just yesterday published a study that predicted that social media advertising will grow from $3.8 billion last year to $9.8 billion in 2016.

Presumably, Facebook will be getting a huge portion of this revenue, given its dominance over other social networks.

Today at Internet Week in New York City, the news about GM was buzzing. At a panel titled "Search and Social: A Love Story," a few industry experts, including Todd Wasserman of Mashable, Laura Salant,'s Director of Research, and Tami Dalley of Buddy Media, discussed strategies and pitfalls of social media.

Ms. Dalley said that people don't tend to publicize their big-ticket purchases on social networks, making it hard for advertisers like GM to reach the right customers.

"For the real expensive items, people share through mainly more private sorts of interactions like email. We don't want to be considered bragging about the items that we can afford."

For smaller-ticket items, interest is usually lower, unless the brand seizes upon an aspect of a product that has viral potential, such as Swiffer's assertion that it can reduce allergens in the home, which got a lot of social buzz from moms.

One concern is the creepiness of targeted ads. Ms. Salant said that there is a generational divide on this. While everyone would rather get relevant ads than irrelevant ads (like women receiving ads for Viagra), the whole thing doesn't jive much with the Woodstock generation that grew up worried about FBI surveillance. She gave the example of a friend of hers that wanted to drive by a store and immediately got a coupon for his favorite shampoo sent directly to his phone.

"People really expect our mobile devices to know us. We find that there is a generational divide in this. If you are under 40, you recognize where they got that information and you accept it. Those over 40 find it creepy."

As Forrester analyst Melissa Parrish noted on her blog recently, "One global consumer goods company told us recently that Facebook was getting worse, rather than better, at helping marketers succeed. And companies in industries from consumer electronics to financial services tell us they're no longer sure Facebook is the best place to dedicate their social marketing budget."

If Parrish is correct, Facebook can improve if it wants to. After going public, even the completely unchecked Mark Zuckerberg might cave in to pressure to sell bigger and more lucrative ads that put marketers' needs before users'.

If you are looking for a major bear case against Facebook, though, take a look at this infographic from Word Stream. Facebook's clickthrough rate is 0.051%. The average nationwide is 0.1%. Google's (GOOG) CTR is 0.4%.

Twitter: @vincent_trivett
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