THE awkwardly-timed news that General Motors, America’s third-largest advertiser, is no longer going to pay to advertise on Facebook, three days before the company floats, is a major blow to the social network, writes Emma Barnett.
Despite its vote of no confidence in Facebook’s paid-for adverts, GM is going to continue to spread awareness of its company through the social network using its free page option.
Facebook pages cost nothing to create and therein lies the major tension for Facebook as it becomes a public company and faces growing pressure from investors to turn ‘Likes’ into advertising dollars.
The social network, expected to be valued at $100bn tomorrow after Mark Zuckerberg, its founder and chief, rings the Nasdaq bell, heavily relies upon more and more companies paying to advertise to niche and mass audiences.
But while the Facebook allows brands to have pages on the site for free, there will be a continuing tension as to whether adverts are a good investment for brands to make above and beyond their existing presence on the site.
One straightforward option is of course for Facebook to no longer allow brands to have fan pages free of charge. However, the social network needs those brands to be on the site in some way, shape or form, and cannot risk, at the still relatively early stage of its commercialisation, to frighten them away.
Last year, Sir Martin Sorrell, the chief executive of the world’s largest advertising group, WPP, voiced his doubts about whether adverts will ever work on Facebook.
He said that social networks were "not the right context" for commercial advertising because they interrupted something that was supposed to be fluid and informal.
"Facebook, Google+, Twitter are advanced forms of social interaction. We used to write letters to each other and now we correspond through Facebook and Twitter. If you interrupt that with a message you may run into trouble.
"I have some fundamental doubts about the ability to monetise social platforms... it is dangerous territory if you try to over-monetise it," he said.
However, he added that influencing social networks remained an "extremely powerful" way of building brands and trust in brands.
Currently the evidence isn’t very compelling for brands to pay. A new study out yesterday showed that the majority (57 per cent) of Facebook’s users never click on any adverts or sponsored content on the site, while another 26 per cent said that they hardly ever engage in such activity.
However, as Facebook invests its freshly created billions into creating new advertising formats and crucially trying to make adverts on mobile devices highly effective, but non-intrusive to the user, the picture could change.
But if it does, and Facebook manages to appeal to millions more customers, it could be in danger of losing its most valuable asset of all: users.