GM Pulling Ads from Facebook: Implications

Yesterday made for an an interesting day for Facebook. First, technical glitches delayed the start of Facebook’s trading by half an hour and then the company didn’t perform as well as expected in the stock market as it closed at $38.23, a 23 cent uptick and an increase of six-tenths of one percent.

I believe the reason the stock did not perform up to expectations is deeply entwined within investors’ fears of companies pulling their advertising money from Facebook, much like General Motors (GM) did earlier this week.

GM spent an average of $30 million yearly to build and maintain their pages on Facebook compared to $10 million for advertising on Facebook. Now that GM has pulled the money from Facebook, Facebook won’t see a piece of the pie. If other companies follow suit, this will be an issue severely hindering Facebook’s growth projections and is another issue Facebook faces, especially as they have not found a way to capitalize on mobile advertising.

While Facebook attempts to figure out what is wrong with the system they have in place for advertising and why GM pulled out, my inclination is Facebook will start charging companies of all kinds to have brand pages on Facebook. This is something I believe should have been done a long time ago regardless of the risks associated with charging for ‘real estate’ on Facebook. Facebook is losing money from GM and needs to find a way to minimize investors’ concerns.

The Axelrod proposed plan for branded pages on Facebook:

Companies should be charged for their usage of branded pages. This rate should be a fee combining companies’ levels of engagement with fans and the amount of pages companies have on Facebook.

The reason I propose this combination is because Facebook needs to focus on giving businesses an incentive to interact with their customers. The longer people stay on Facebook, the better it is for brands and Facebook. For the latter, the longer people stay on Facebook, deductive reasoning suggests a higher propensity of clicks on ads. Nonetheless, as I’m not privy to internal information, this is something Facebook needs to analyze.

In the midst of all of this, the one thing Facebook should keep in mind is that they cannot jeopardize their small business segment. It’s a fickle balance between making money from branded pages and advertising. Hence, this is where the levels of engagement factor comes in – the more companies engage with their fans on their branded pages, the more they should pay. As these calculations can be derived from branded pages’ insights, this tiered plan should be a formidable approach that can help offset Facebook’s losses in advertising and ensure Facebook continues to get its piece of the pie.

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