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May 29, 2012#

Warning to Facebook: Tread Slowly with Advertisers

Much has been made of General Motor’s decision to discontinue advertising on Facebook (just days before it went public), citing poor ROI.  It also didn’t get what it wanted:  GM’s request to run bigger, higher impact ad units, including taking over an entire page, was politely, though firmly, rejected by Facebook.

And rightly, so.  At least from the standpoint of protecting the brand.

Facebook’s top priority is to enhance the user experience and connections of its 900+ million fans.  It’s unlikely that more prominent, in-your-face, ads are going to mesh with this or with what co-founder, Mark Zuckerberg, cites as his stated mission: to build services NOT to make money but rather to “make money to build better services.”

Indeed, the Nielsen Online Consumer Survey 2012 shows that less than half of online audiences report trusting traditional advertising and brand messaging.  Digital advertising — banners, on-line video ads, display ads on Facebook — perform even worse. However, 92% of all people claim they trust and are influenced in their purchase decisions by friends on-line — even 70% feel  this way about strangers on-line.

To his credit, Zuckerberg is smart enough to understand that without imposing strict advertising constraints his goose may not remain golden for very long.   Of course, he now serves three masters:  devoted fans who have little interest in or patience with intrusive ads, frustrated advertisers who want more proof of ROI in social media, and fickle shareholders who are anxious to see the $100+ billion IPO valuation realized.  Without the loyal devotion of the first group, the next two don’t exist.

So, while advertising, which today generates around $3 billion in annual sales, will no doubt play some part of the company’s future revenue generating machine, for the sake of FACEBOOK THE BRAND,  the company would be well advised to tread carefully and thoughtfully, first and foremost respecting its fans,  into any deeper commitment to advertising, while simultaneously tapping into it’s innovative heritage by going well beyond advertising to fill its coiffers.  If it plays it’s cards right, it could very well become the center of social commerce based on e-payments.