May 16, 2012, 12:02 PM

General Motors puts the brakes on Facebook ads

The move comes days before the social network’s IPO.

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General Motors Co. is pulling its advertising from Facebook Inc. after a standard review of marketing spending determined that the social network’s ad formats failed to drive home the desired results.

General Motors is the third-largest advertiser in the United States, according to a ranking of marketers’ ad spending conducted by Advertising Age, a marketing trade magazine. The automaker, which had advertised on Facebook since 2008, says it will continue to maintain a presence on the social network via its various brand pages.

The move strikes a blow to Facebook, which generates the vast majority of its revenue from advertising. In 2009, 2010 and 2011, and the first quarters of 2011 and 2012, advertising accounted for 98%, 95%, 85%, 87%, and 82%, respectively, of Facebook’s revenue. Moreover, the planned move, first reported by the Wall Street Journal, comes just days before the social network’s initial public offering.

General Motors’ move actually wasn't that surprising given its primary focus on direct response marketing, which aims to drive an immediate action, says Sean Corcoran, senior vice president, director of digital media and social influence at for mediahub, advertising agency Mullen’s full-service media planning and buying unit. Mediahub does not handle GM's paid media. "Facebook offers great opportunities for marketers to engage with a brand, but it isn’t great, in most cases, for direct response marketing."

The basic idea behind most Facebook ads is sharing, he says. Spurring shoppers to share or Like an ad or a brand's content can be extremely valuable, says Corcoran. "Facebook offers brands the potential for tremendous reach," he says.

The common thread at Facebook’s marketing conference in February was its desire for marketers to use ads to expand the reach of their messages, in part, by leveraging the endorsements of a consumer’s friends. For instance, an ad for men’s fashion retailer Bonobos notes which of a consumer’s connections Like the brand.

Facebook’s ad formats are markedly distinct from other ad formats, such as those on Google Inc., because consumers on the social network are not necessarily in a buying mindset. General Motors did not immediately respond to inquiries about its move.

Because Facebook ads are generally built around the notion of brand-building rather than selling—and to keep consumers on the social network—Facebook offers discounts on its ads for marketers whose ads, when clicked, don’t take consumers to a page outside Facebook. For marketers whose ads click through to another place on Facebook—for instance, a retailer’s Facebook page—the social network offered a 45% lower per click fee during the last four quarters (that is, the year ended March 31), according to a recent report from Facebook advertising firm TBG Digital.

GM’s move dovetails with Facebook today increasing the number of shares it will offer in its initial public offering to 421.2 million from 388 million, according to a U.S. Securities and Exchange Commission filing. Facebook is not selling any of the additional shares. Rather, they are being sold by the company’s founders, employees and investors.

The boost in the number of shares being offered follows a filing yesterday in which the social network increased the price target range for its shares from $28 to $35 per share to $35 to $38 per share. More shares means the initial public offering could raise up to $16 billion, with Facebook generating $6.8 billion. Including the nearly 63.2 million shares earmarked for overallotment, which allows underwriters to buy additional shares to meet excess demand, the offering could rise even further, to more than $18.4 billion.

Facebook is expected to set the final price on its shares tomorrow and begin trading on Friday on the NASDAQ exchange using the symbol FB.

Richard Mumby, vice president of marketing at clothing Bonobos will discuss Facebook’s advertising formats at the Internet Retailer Conference and Exhibition 2012 in June in a session entitled “The Ins and outs of Facebook ads.

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