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Why GM slammed the brakes on its $10m Facebook ads

Wheels fell off 'boring inefficient' car adverts

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Analysis In the week that Facebook finally went public, General Motors has axed its paid-for advertising on Mark Zuckerberg's social network.

GM said today that it was still going to have a Facebook page and everything, but it wasn't going to buy any more ads because they just aren't shifting enough cars. It reportedly spent $10m on the site last year, contributing towards Facebook's $3.7bn ad revenue in 2011.

"We are reassessing our advertising, but we remain committed to an aggressive content strategy through all of our products and brands, as it continues to be a very effective tool for engaging with our customers," the vehicle manufacturer, one of the US' biggest advertisers, said in an emailed statement.

To be fair, GM had said earlier this year that it was reviewing its ad spend in a bid to save $2bn over the next five years, so something had to go - but to yank all paid-for ads off Facebook indicates the firm didn't think it was getting a good return.

The news came just hours after Wordstream, an internet marketing firm, published an infographic that showed Facebook was way behind the Google Display Network, which is just 20 per cent of Google's ad revenue.

Wordstream agrees with a Webtrends report that puts the Facebook click-through-rate (ad clicks versus impressions) at just 0.05 per cent, half the average for banner ads and eight times less than Google Display, which has a 0.4 per cent CTR.

"Facebook had pretty good marks for huge audiences and growth, where they got really killed was in two areas - ad formats and ad targeting," Larry Kim, founder and CTO of Wordstream, told The Register.

"Think about most banner ads: they have rich media and flash or video. These are all the things that would compel someone to want to click on an ad. The Facebook ads are very boring, not very imaginative, they're not able to deliver a very rich experience because of the limitations of the ad format."

Facebook misses the target

Given how much of an issue privacy is these days, targeting advertising effectively is an area where, surprisingly enough, Facebook falls down. The social network is great at finding demographics like age, sex and location, but it's not so hot on finding out what you really want to buy.

"Say you've visited an airline company to book a trip to San Francisco and then you don't book it because you're just thinking about it. But then as you go to other websites like the BBC or USA Today the ads for that airline company follow you around from site to site, it's like a puppy dog following you home," Kim explained.

"It's incredibly targeted, incredibly powerful advertising because what it's doing is combining your interest with your intent - it remembers not only that you're interested in a flight to San Francisco but it also remembers that it was recently, it knows you're in the market for that flight.

"People tend to click on those ads, they're more relevant and more engaging and the problem with the Facebook ads that we're finding is that they're neither very engaging nor very relevant so that's why you're seeing such a low ad conversion rate."

Most companies are advertising with Facebook to get "likes" on their fan pages, but there are still no hard stats on the return of this investment.

Kim reckons Facebook hasn't fully tuned itself to be a ruthless advertising machine, which presents a risk for investors relying on those ads for the network's revenues. Around 86 per cent of Facebook's money comes from adverts.

"It remains an open question whether or not Zuckerberg even wants to be an ad company because they're talking about other things like trying to connect people. The word advertising shows up once in the 2,000-word letter to shareholders for this big stock offering - it's not necessarily a main priority," he said.

Kim also wasn't surprised that GM wanted to halt its Facebook advertising.

"Say you're selling a car, you might sell it to people between the ages of 20 and 30, a particular car might appeal to women or whatever," he said.

"But just because you fall into that demographic doesn't necessarily mean you want to buy a car right then. People might own a car for ten years so it can be very difficult to know exactly when they're in the process of trying to buy a car."

Facebook's wider demographic targeting makes its ads an "incredibly inefficient way of trying to sell cars", he added. ®

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