May 16, 2012 at 3:09 PM ET
General Motors Co.’s decision to stop advertising on Facebook is like the story of The Emperor’s New Clothes. In this cyber scenario, GM, not a child, is pointing out that Facebook may be a bit underdressed when it comes to getting consumers to buy the automaker’s products.
But is Facebook really naked when it comes to providing a bang for advertising bucks, or is GM just not able to see the real potential of the social media powerhouse?
The answer may come down to what companies want out of social networking sites such as Facebook: immediate clicks on ads, or the potential for brand-loyalty building.
“GM is making a mistake, and it’s probably because they don’t have the right analytics in place and are too obsessed about short term sales effects,” said Rex Briggs, CEO of Marketing Evolution Inc., which has worked with a host of large companies including GM to measure how ad dollars are spent.
The company, he stressed, is living in the past if it expects quick returns similar to the results from television ads or rebate promotions. Social media just doesn’t work like that.
“Social media is a square peg that doesn’t fit in those round holes and doesn’t fit the traditional way marketers think about incentives,” he noted. “It’s based on people engaging with a brand and becoming an advocate of the brand.”
Consumer products companies, he continued, need a major presence on Facebook and other social networking outlets, but they also need to spend money on ads, especially things like sponsored stories, which he said bring in $3 plus for every dollar spent on Facebook.
For GM, however, the ad payoffs on Facebook weren’t enough.
“GM could not see the value and I am guessing it’s not the only one,” said Peter Cohan, a management consultant and venture capitalist. “If an advertiser on Facebook can track a user clicking on an ad to an online purchase, then – depending on the price of the ad and the value of the purchase – that advertising money would be well spent,” he maintained. “Otherwise, it’s a waste of money.”
Some social media experts think the main value in Facebook is in building a loyal fan base.
“There has been a great deal of skepticism around Facebook's advertising model, but simply relying on display ads to do the trick is the wrong approach," said Jeffrey Dachis, CEO of Dachis Group, a social business consulting firm that works with companies such as Disney and Target. “It's about engagement. Users that can interact with compelling content on Facebook will be more likely to serve as brand advocates than those who are presented with an advertisement with no opportunities for interaction."
GM, Dachis noted, doesn't plan reductions to its marketing budget for content creation and community management on Facebook. GM did not immediately return a phone call requesting information on their decision. But a story in the Wall Street Journal Wednesday quoted the company's marketing head Joel Ewanick who said on Facebook "the content is effective and important."
When it comes to building a fan base, Jan Rezab, CEO of social media analytics company Socialbakers, said the auto giant has done a crummy job engaging potential customers on Facebook, noting that Mercedes-Benz has more than 7 million likes on its Facebook page, compared to less than 400,000 for GM.
“We think that GM should not scrap their Facebook marketing strategy yet,” Rezab advised. “A lot of brands have been successful.”
Indeed, Ford Motor Company, with 1.5 million Facebook likes, tweeted Tuesday that: “It's all about the execution. Our Facebook ads are effective when strategically combined with engaging content & innovation.”
When asked to elaborate on the tweet, Ford's global head of social media, Scott Monty, told MSNBC.com Wednesday that "we’ve found Facebook ads to be very effective when strategically combined with engagement, great content and innovative ways of storytelling, rather than treating them as a straight media buy."
The company has found success with Facebook and other digital outlets, he said, including the debut of the 2011 Explorer which "yielded better results than a Super Bowl ad for a fraction of the cost."
Aside from marketing, Ford also sees value in working with Facebook in research and development.
"Our engineers have also been working with Facebook engineers to develop unique and safer ways of integrating the car experience with Facebook," he noted.
GM, on the other hand, apparently doesn't see the potential that Ford does, moving to dump Facebook ads, just days before the social networking site's initial public share offering. Some marketing experts believe it could get other companies thinking the same way.
“A lot of marketers at places like GM continue to see Facebook as a media buy rather than a conversation tool. When you look at it from that standpoint it doesn’t look like a good media buy,” said Elliot Schreiber, marketing professor with Drexel University's LeBow College of Business. “I suspect we’re going to see others who’ve been sitting on the fence that are going to back out.”
As for more companies bailing, Marketing Evolution’s Briggs said, “you can always get another lemming to follow over the cliff, but anyone who’s studying this and thinking through the difference between planting the seed and harvesting won’t follow GM over the cliff.”