General Motors Co said on Tuesday it will stop advertising on Facebook, after deciding that paid ads on the site have little impact on consumers’ car purchases.
The move by GM, one of the largest advertisers in the U.S., puts a spotlight on an issue that many marketers have been raising: whether ads on Facebook help them sell more products. The decision marks the first highly visible crack in Facebook’s strategy.
“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.
“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.”
GM will continue using the part of Facebook that allows companies to distribute content for free, The Wall Street Journal reported.
A spokesman for the company said the company routinely reviews and adjusts its media spending.
“We regularly review our overall media spend and make adjustments as needed. This happens as a regular course of business and 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,” GM said in a statement.
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.
Several analysts believe that GM’s decision will cause other marketers to take at least a second look at their own Facebook strategy. Melissa Parrish, an analyst at Forrester, wrote in an e-mail that the move would force Facebook to listen more closely to marketers.
Facebook declined to comment on GM’s media strategy. The social network, which has 901 million users worldwide, accounted for 14.6 percent of all Web traffic in 2011, according to a recent report from ComScore.
GM’s decision raises questions about the ability of Facebook to sustain the 88% revenue growth achieved in 2011. The social media network announced last month its first-quarter ad revenue was down 7.5% from the previous three months. Facebook blamed “seasonal trends” for the decline, as well as a greater number of users from outside the U.S., where ad rates are lower.
Facebook plans to raise as much as $16 billion through the IPO, the biggest ever for a technology company. Its shares, to be offered at $34 to $38 each, are set to price May 17 and begin trading under the symbol FB on the Nasdaq Stock Market the following day.