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Facebook’s worst nightmare: how the other dominoes could fall

After General Motors announced last week that it’s cancelling its Facebook ad budget, who else might follow suit, and why?

GENERAL MOTORS’ DECISION to cancel the entirety of its $10 million Facebook ad budget is, arguably, the second blow to hit the company in this regard.

Back in January Procter and Gamble CEO Bob McDonald told Wall Street he was scaling back his company’s $10 billion annual ad budget (mostly in traditional media) to take advantage of free impressions offered by Facebook in the form of Likes and status updates.

That’s two out of America’s top three biggest advertisers.

The two decisions were made for different reasons – GM wasn’t convinced Facebook ads are effective; P&G is simply looking for free media efficiencies – but they’re linked.

It appears to be dawning on clients who control the major ad budgets in the US that if your marketing content is interesting enough you don’t need to advertise on Facebook. Advertising on Facebook is free,  if you can create something compelling enough to go viral without a major media spend behind it.

This is Facebook’s worst nightmare: If P&G and GM both question why they should pay to be on Facebook, how long before Facebook’s other big advertisersm – American Express, AT&T, Disney, Verizon—suddenly ask: “Hey, where’s the return on investment?”.

Here’s how that scenario could play out, assuming Facebook fumbles the ball (which it probably won’t):

  • Advertising on Facebook isn’t as effective for some advertisers as advertising on search, for the simple reason that people searching for information on purchase decisions are perfect targets for ads whereas people checking out message from friends are not.
  • Wall Street has frowned on the quality and performance of Facebook’s ads, most recently in a critical note from BTIG analyst Rich Greenfield.
  • WPP, the world’s largest ad agency holding company, is also probably one of Facebook’s biggest clients. WPP’s media buyers will spend a collective $400 million on Facebook this year. Yet WPP CEO Martin Sorrell has “fundamental doubts” about whether advertising on Facebook is a good idea, because it interrupts personal conversations with impersonal branding.
  • Sorrell is not alone. Executives on the client side are also asking questions about measurement and effectiveness on Facebook. “The question with Facebook and many of the social media sites is, “What are we getting for our dollars?”,  Michael Sprague, vice president of marketing at Kia Motors, told the Wall Street Journal
  • And some advertisers just don’t get Facebook, and maybe never will

In this scenario, with GM, P&G, Kia and WPP gone, it’s not hard to imagine a full-scale turn away from Facebook by advertisers, as they head toward more effective, more measurable media.

Will this happen? Almost certainly not. Facebook ad sales chief Carolyn Everson has proven herself a master of client relations, especially with the new(ish) Facebook Studio, which shows advertisers what they should be doing on the site.

And even if it did happen, Facebook could start charging brands subscription rates for their Brand Pages, a service they currently get for free.

But there’s no natural law of social media that says Facebook must always stay in business, just because it’s Facebook.

GM just proved that.

- Jim Edwards

More: Facebook shares nosedive in early trading on NASDAQ

Facebook’s Mark Zuckerberg weds on day after IPO>

General Motors pulls $10m account from Facebook, says ads have little impact>

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