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3 Percent: Why GM's Media Spending Matters

  |  May 18, 2012   |  Comments

Why aren't serious advertisers dedicating reasonable amounts of budget toward the one medium that moves consumers the most?

This week, General Motors decided to pull its ads from Facebook. According to an article in The Wall Street Journal, the automaker was unclear on the effectiveness of the ads. The company couldn't tell (and therefore, was unsure) that the money it was spending was actually moving people closer to buying a car. GM decided to stop spending money on advertising, but will continue to produce content and (assumedly) engage with consumers on its Facebook fan page. Evidently (according to Forrester Analyst Nate Elliott), other brands are also starting to rethink their spending on Facebook ads.

When you take a closer look at what GM was spending on Facebook, some clear trends emerge:

* GM spent $300 million on digital ads last year, making its Facebook spend just 3 percent of its overall budget. I imagine that GM optimizes its digital buy on a regular basis. I would be shocked if it didn't, as this is pretty standard practice. If GM moved money away from any other site that was getting such a tiny slice of the budget, it probably wouldn't have made news.

* GM's overall advertising budget is $1.83 billion. That means that digital itself is only 16 percent of the company's total budget. Considering the fact that people use the Internet massively when buying cars, it is shocking that GM only dedicates this small amount to the medium. Of course, this may be because digital media is criminally underpriced, but that is another story.

* GM is still going to spend $30 million on content development for Facebook. That is certainly not good financial news for Facebook, which gets no money from the stuff that gets put on brand pages. But it is good for the agencies that support GM. Facebook is a brand content channel and it's great that it can continue developing things specifically for it.

Where does all this leave us? Well, first of all we have to have a bit of perspective. The only reason why GM making an optimization decision on 3 percent of its budget is worth talking about is because Facebook is set to go public very soon. The company's primary revenue stream will be through the sale of ads and a huge advertiser like GM making a decision like this is a chink in Facebook's bright blue armor. I imagine there are hordes of potential investors sitting on the sidelines with huge smiles over this news. If people believe that Facebook has some inherent weakness, it means the stock may open lower. They can get in before it gets driven to the moon (which I am certain it will).

Of course, one decision by one advertiser from Facebook does not a trend make. In fact, Ford seems to be reaffirming its commitment to advertising on Facebook. It's clear to anyone who has used Facebook in the last several days that there are lots and lots of ads on the site. So, to sum up: GM's decision is absolutely no big deal.

But, just for the sake of argument, let's take a look at what GM's move can tell us about the right way to use Facebook. Because, after all, Facebook has over 900 million active users. That is a lot of people who can be targeted with messages and offers. GM's problem is that it isn't sure that its ads are moving people closer to buying a car. I certainly don't have any inside knowledge, but I would tend to believe that to be true. I'm sure GM did the analysis on it. However, I'm not convinced that actually selling things is the best use of Facebook's ads. I believe (and have had the experience) that the best way to use Facebook ads is to simply get people to come to your Facebook page. That is, you advertise simply to get more fans.

To which many will say, "So what?" There's always been this argument against trying to gets fans for the sake of getting fans. The fact is fans don't cost all that much. It often makes sense to simply get a lot of fans and then see what you can do with them. Even if they are not qualified buyers, some of their friends may be. If you get one person to become your fan, who then posts something to their 150 friends, you have a great chance of that person producing a fan.

In the grand scheme, 3 percent of a budget - even a huge budget - is not terribly significant. We need to be concerned with a bigger question: why serious advertisers are still not dedicating reasonable amounts of budget toward the one medium that moves consumers the most.

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Gary Stein

Gary Stein is SVP, strategy and planning in iCrossing's San Francisco office. He has been working in marketing for more than a decade. Gary lives in San Francisco with his family. Follow him on Twitter: @garyst3in. The opinions expressed in Gary's columns are his alone.

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