General Motors Inc.'s decision to stop advertising on Facebook may be a wake-up call for the No. 1 social network, but top advertising executives say it's far too early to know if the site will take off as an advertising platform.
"There's a lot of potential but it's not a slam-dunk," said Martin Sorrell, chief executive of WPP Plc, the world's largest advertising agency.
"Showing the impact of branding on Facebook is going to take a long time," he added.
Facebook is due to begin trading on Nasdaq on Friday in an initial public offering that will raise about $15.2 billion, the biggest ever from Silicon Valley. With almost a billion users, Facebook generated nearly $4 billion in revenue last year, mostly from advertising.
News on Tuesday that GM, the third largest advertiser in the United States, was pulling back from Facebook raised questions about whether ads on the social network are really more effective than on traditional media.
In addition, the company last month reported its first quarter-to-quarter revenue slide in at least two years.
"For GM, advertising on Facebook is the equivalent of hanging up posters in a high school ... why would anyone stop to look at the posters when they are congregating, talking in the hall?" Russ Lange, co-founder of marketing consultancy CMG Partners said.
When companies set their marketing budgets in August and September, Lange expects them to consider the question of whether Facebook can be an effective advertising tool.
"They're going to see the GM pullout as a reality check," said Ronald Camhi, head of the Advertising Marketing and Media practice at law firm Michelman & Robinson.
Advertising experts do not expect many companies to follow GM. Major brands such as Nike, Nordstrom, Wal-Mart and Ford said they were continuing to advertise on Facebook.
"Macy's does advertise on Facebook, and digital media overall continues to be one of our fastest growing media segments. Our Facebook brand page serves as a forum for rich conversation with our most passionate customers, and we continue to see great growth in fan participation and engagement," said a Macy's spokeswoman, Holly Thomas.
Nevertheless, experts say Facebook has to step up its game in explaining how it can be useful and effective for companies to incorporate the site in their campaigns.
"When I look at the GM news it is a little concerning," said Bernie Williams, a money manager for USAA. "They have to make that switch, from display to how to sell a product without ruining that social interaction. That could be a tough trick although they have 60 percent of the world's population."
Facebook declined to comment for this story.
In its IPO prospectus, the company singled out effective marketing campaigns such as the "Mean Stinks" confessional-style video clips to generate awareness for Procter & Gamble's "Secret" deodorant. Facebook said Secret's U.S. sales leapt 9 percent in the 26 weeks the campaign ran.
WPP's Sorrell said Facebook has only had "limited success" in proving the effectiveness of its site as an advertising platform.
Unlike TV advertising, which companies know how to handle, Facebook offers new tools that companies have yet to learn, other advertising executives said.
"We are only just beginning to understand the potential for brands and the return on investment on ads there too," said David Jones, CEO of advertising agency Havas.
"TV has been going on for 50 years so everyone has it down pat. Many of the advertising platforms on Facebook are only a year old. This will take some time," added Jones, who is also on the Facebook Client Council, an advisory board of 12 people from ad agencies to digital specialists.
One of the main issues surrounding ads on Facebook is how to measure their effectiveness and return on investment (ROI).
"From a traditional ROI standpoint, Facebook has a lower click-through than others such as Google for example," Camhi said.
"The advantage Facebook has is that the time spent on a page is higher," Camhi said but added that Facebook's metrics for measuring effectiveness needed to be clearer. "Unlike Google which prides itself on its analytics, Facebook will have to work on getting their metrics out," he added.
The need for clarity and to address marketing needs has not gone unnoticed by Facebook. The company, founded by Mark Zuckerberg in a Harvard University dorm room in 2004, has ramped up its outreach to Madison Avenue.
Last year, Facebook hired Carolyn Everson, an ad industry veteran who worked at Microsoft Corp., Viacom's MTV Networks and Walt Disney Co., and the company hosted a splashy event in New York in March to showcase its newest ad offerings.
"I think they will be concerned about it, anybody would be, but it doesn't seem to have affected the IPO," Sorrell said of the GM move.
"There are 900 million people on the planet who use Facebook. It's an incredible achievement," he added.
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