General Motors pulled its paid advertising from Facebook yesterday – after concluding they were ineffective.

The direct financial impact of GM’s move is minimal for Facebook, but the decision drew attention to the network’s advertising system, which some observers regard as immature.

GM reportedly spends about $4 billion annually on advertising worldwide. Of this $4 billion, approximately $10 million is spent on Facebook advertisements, and another $30 million on Facebook fan pages.

The public falling-out could have come from Facebook not producing a strong enough ad formula to meet GM’s business goals.

“At a lot of these conservative companies, these guys have to show (a return on investment),” Enderle says. “You can’t just say that ‘Facebook ads make us look trendy.’ “

The problem is that if auto ads, generally among the most effective online promotions, fail on Facebook, then major advertisers including AT&T Inc., Procter & Gamble Co. and American Express Co. may follow GM’s lead and curb spending on Facebook said Carlos Kirjner, an analyst at Sanford C. Bernstein & Co. in New York.

“The revenue loss is insignificant, but the fact that one of the largest brand advertisers in the country sees Facebook as ineffective suggests others may do so,” Kirjner said in a research report.

But even if $10 million for Facebook is almost nothing, the news comes at a tricky time for the social newtwork — just days before an initial public offering expected to reap billions for the company and value it at up to $US104 billion.

While Facebook and Google both have broad reach, ads posted at the search giant’s websites are 10 times more likely to be clicked than those at the social network, according to online marketing specialty company WordStream.

Facebook has more than 900 million users who log in at least once a month, but it makes only a few dollars per year from each one, chiefly through advertising.

Facebook is expected to begin Nasdaq trading on Friday in the largest-ever Internet IPO that could easily value it above $100 billion.


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