The death of Facebook. It's not beyond imagination...

Paid social media advertising doesn’t impact sales enough to warrant significant expense. That’s the conclusion reached today by GM, who pulled $10m of advertising spend from Facebook.

The move is mildly embarrassing for Facebook on the eve of their long anticipated IPO, but I don’t think anyone there will be leaping from the window ledge anytime soon. Other than making the Winklevoss twins’ morning cornflakes taste slightly better, it is unlikely to affect the company’s valuation.

GM is pulling out of paid advertising

But it should.

It is another straw placed gently on the back of the distraction advertising camel. Facebook, much like Google, is essentially an advertising company. The social functionality exists only to collect data and drive advertising revenue, just like Google’s search engine. The fact that it’s free to the user is the source of its popularity. But make no mistake, you are not the customer, you are the product. The staff, managers, executives and share holders are in the game to sell you to advertisers for a lot of money.

I’m not objecting to that in principal, I’m objecting to it as a long term strategy for these companies.

Sophisticated consumers, empowered with technology are simply tuning out the messages that companies like GM have been paying so much money for. It’s not just the simple mechanics of it all – skipping through ads on your DVR, ignoring phone numbers you don’t recognize. It’s also a function of automatic behavior driven by ad-saturation. Who opens e-mails that are clearly unsolicited now? Who isn’t throwing the junk mail straight in the trash? Do you even notice the ad banners on the news site you’re reading anymore? Did you click on any today?

There are better ways to engage with potential customers than waving something bright and shiny at them and luring them to your tent with clever catchphrases and good looking people.  

Marketing is different now. If you want to engage people, you have to make a contribution. You have to be able to show them some evidence that you’re worth their time.

‘Content marketing’ is a phrase still best known to those of us inside the marketing discipline. Some of us call it ‘Inbound Marketing’. At Talascend we call it ‘giving stuff to your customers for free to encourage a conversation.’

Cash is not necessarily the currency of customer engagement any more.

The problem for Facebook and Google is that they depend entirely on old fashioned distraction advertising revenue for their income. While this remains the case they are driving their unstoppable juggernauts toward a cliff face.

They would argue that nobody has made a bigger contribution to our lives than Facebook or Google and I’d agree with them. These two fabulous and innovative companies have made my life easier and more fun and I don’t have enough backslaps and thanks to dish out to Mark and Larry and Sergei et al. Here’s to you all and well done. I’m glad you’re billionaires. You deserve it.

But how will the businesses you’ve built sustain their growth and profitability when they depend so entirely on yesterday’s advertising practices?

GM aren’t pulling out of Facebook, only the paid ads. They will, says the usual Marketing execu-mouthpiece, remain committed to distributing content through Facebook, they just won’t be paying for it thank you very much. They have found it to be ineffective.

What GM has discovered will surely not differ substantially from what others will discover. GM afterall is one of the largest advertisers in the US and you can bet on the fact that they have a lot of very smart people using a lot of very clever technology to be sure they’re right about this. Even without the statistics they have access to, all logic tells me that GM are absolutely right. Others will follow.

Facebook’s ad revenue is not keeping pace with its growth. Facebook’s profit fell off in the first quarter of this year and its revenue growth rate is now slowing down. The numbers aren’t impressive anyway. Facebook generates just $3.50 per user in advertising revenue. If it has to increase the presence of ads to increase engagement from advertisers it risks losing product (us).

Everyone’s always looking for the potential death of Facebook. This is it. Content marketing is the future, distraction advertising is the past. Facebook, for all its youth and modern identity is operating a fundamentally old fashioned model and if GM’s decision turns out to be the first of many, then we’re seeing the first major crack appear in the Facebook machine.

I'm asking you... do those companies who spend millions on advertising banners on Facebook get your business?




Richard Spragg writes on various subjects including global engineering staffing and global engineering jobs.