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The buzz is that GM is rethinking its relationship with Facebook after the pre-IPO pull out
Remember just a few months ago when Facebook was days from its IPO and GM announced that it didn't see itself moving forward in the paid-ads sector of Facebook? Well it appears that the two companies are trying to make amends and see what type of paid ad deals it can strike.
Now it appears that GM and Facebook are in talks to bring the largest US car manufacturer back into the paid ad sphere, according to reports from the Wall Street Journal. And in order to sweeten the deal, it looks like Facebook will give GM better data on how the company can increase ad effectiveness.
Before Facebook went public, GM spent roughly $40 million on its Facebook presence -- and around $10 million of that was 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.
It was a tough moment for Facebook, trying to show its strength just 48 hours before its IPO, when such a big company seemed to state that the company pages were great free advertising.
While losing GM's advertising account hardly dinged Facebook's $3.7 billion in revenue, it did 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.
Many thought that this was just a short-term change that GM would make and the company would be back soon to renegotiate -- which looks to be the case. Its hard to have no paid ad presence on such a global social network -- not to say that it couldn't happen.
But the GM deal is not closed just yet, according to the Journal.
A recent study from U.K.-based digital-marketing agency Greenlight found that 44% of respondents say they "never" click on an ad listed on the social network and an additional 31% of respondents said that they "rarely" click on ads. Just a mere 13% of respondents said that they either "often" or "regularly" click on the ads.
With a click-though-rate of 0.5% and 0.8 percent, according to Greenlight date, Facebook may have more explaining and hand-holding to do with its paid ad clients.
With Facebook shares experiencing a 19% fall since the company's May 18 IPO, the company has a lot to prove in order to restore confidence that it can move forward with revenue growth quarter-over-quarter, especially since 80% of its revenue comes from advertising.
Net income slid 12% to $205 million in the last quarter, from $233 million a year earlier at the rapidly expanding company.
While Facebook says that its advertising business typically slows down in the first three months of the year, investors are looking for growth here as the company is a newly public entity.
Revenue, which totaled $1.06 billion in the three months ended March 31, declined around 6% from the fourth quarter. It was the first quarter-on-quarter drop since 2010.
While getting GM to sign back on for some, if not all, of the $10 million advertising budget it had previously would be great for Facebook, the company also has to show all current and new customers that paid ads on their site are worth the investment. With Facebook mobile ads just starting to gain steam, there may be some hope yet, but Facebook is going to have to use more than its 900+ million usership to get people to re-up their contracts, they will need to show more results.
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