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With GM yanking $10M from Facebook in one move, investors may start questioning Facebook's ad model
Just as Facebook execs are sliding bottles of champagne in their fridges to chill, word spread that GM was planning to pull $10 million in advertising funds off of Facebook.
The largest U.S. auto maker looks like it is planning to see just how engaging its companies pages are without paying for the liquid and banner ads on the site.
Frankly, this news couldn't have come at a worse time since Facebook is looking to go public on Friday and wants to public dialogue to be firmly planted on what a rocket ship the company is. The news also came out just hours after Facebook confirmed that it was adding another 50.6 million shares for opening day and pumped up the starting share price range from $28-$35 to $34-$38.
These changes would place the company valuation between $92 billion and $103 billion.
But now that people are hearing a big company like GM is looking at what Facebook can do for the auto-maker without paying for ads, the conversation is turning to, "what other companies are going to stop spending on Facebook?"
GM spends roughly $40 million on its Facebook presence -- and around $10 million of that is paid directly to Facebook for advertising. The remainder of the funds cover content created for the site, agencies that manage the content and daily maintenance of GM’s pages. Chopping out a quarter of a Facebook marketing budget is friendly to GM's bottom-line and leave Facebook in a precarious position: tiptoeing between the effectiveness of it Open Graph Pages features and its advertising revenue.
While losing GM's advertising account hardly dings Facebook's $3.7 billion in revenue, it does make waves for other companies that are teetering on the edge and strategizing their Facebook approach. It's really hard to beat free marketing -- and creating a Facebook page is just that.
Lucy Jacobs, COO at Spruce Media (a Facebook Ad API partner), explained her take on what this GM marketing shift could mean for Facebook and those paying for advertising on the giant social network.
Jacobs believes that Facebook isn't just about gaining a fan here and there, it is about resonating with people on the social site and engaging genuine conversations at the right time -- and that is hard to accomplish in a single place (like a Facebook page).
"The key issue is understanding what content to amplify to fans and Facebook is helping brands navigate these channels," Jacobs explained. "The key is building a presence and content that resonates and then, once you understand the content, . . . my guess is that GM will dial up ad spend again once they better understand engagement within their page content and what content is relevant to amplify."
It will be interesting to see if Facebook will address this conversation point at all prior to its IPO, or let this one slip by since it is so close to the big day.
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