Facebook Advertising is Ineffective

While social media sites are all the rage right now, companies that advertise on Facebook (Nasdaq: FB) have frequently experienced lackluster results.

Just last week, the Wall Street Journal reported that General Motors (NYSE: GM) – the third-largest advertiser in the U.S. – has pulled all its Facebook advertising because of concerns about their effectiveness. This apparently came after meetings between executives at both companies, in which Facebook was apparently unable to convince GM of the return on their advertising spending.

While General Motors will continue to spend $30 million a year with digital agencies to maintain its Facebook presence and engage with users on the platform, the company will be sending zero dollars to Facebook. It’s important to note that GM believes in digital brand advertising, and plans to spend $300 million annually on such campaigns. However, none of this budget will be spent on Facebook advertising.

On a personal note, I can say that my company’s direct response campaigns on Facebook were a complete flop. The performance of our media spending on Facebook paled in comparison to other platforms, particularly Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT) MSN, which have always been very responsive.

My anecdotal evidence indicates that while many companies believe they should advertise on Facebook, the ads have yet to deliver the desired return on investment.

Why is it that Google ads do so well, while Facebook ads do so poorly? I think the reason lies simply in user behavior.

For example, through Google I can target an advertisement for a free special report titled “The Gold & Silver Buyers’ Guide” to users who are searching for a term such as “how to buy gold.” These users have raised their hand and expressed their interest based upon the keywords of their search. The same applies to Google’s Content Match, which displays an advertisement based upon the keywords associated with a page of web content such as an article or blog post.

Through Facebook, I can target the demographic most likely to be interested in my report (say, 55–75 year-old men with a net worth of +$250,000). However, these people have not necessarily expressed an interest in buying gold or silver. And even if they were interested in the topic, I’m presenting them with an advertisement at a time when they are going online to connect with their friends, share photos, or play a game. 

Companies ranging in size from GM to Wyatt Investment Research are deciding to discontinue spending money on Facebook advertising. This isn’t a good sign for the health of the business.  It simply indicates that some companies haven’t been able to figure out how to make Facebook ads productive. Some companies are obviously seeing value from Facebook – or simply think that this is a place that they must advertise, regardless of the results.

This is unlike Google, which from the onset had an advertising platform that was both productive and profitable for advertisers. Google was not only able to be productive for “brand advertisers” like GM, but also direct response advertisers like Amazon (Nasdaq: AMZN), Dell (Nasdaq: DELL) and Zappos.

At this stage in the game – with annual revenues of $3.7 billion last year – you would think that more companies – big and small – would be reporting great success from their Facebook advertising campaigns. However, that doesn’t seem to be the case today.

To read more about the Facebook IPO and the five red flags that should keep you from investing in this overpriced stock, click on the following links:

Five Reasons to Avoid Facebook (FB) Shares

Facebook Penetration Slowing

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