Facebook's IPO, From an Adman's Perspective

May 16, 2012 — -- It is just days before Facebook's scheduled May 18 IPO. By many accounts the IPO will be a $100 billion-plus success, minting a subway car full of new millionaires and an elevator full of new billionaires.

By all accounts Facebook is a force of nature with its more than 900 million users. Everyone and their mother is on Facebook where they play games, share pictures and videos and tell their business to one another. It is intimate and immediate and should be an advertiser's dream. So, it is understandable that the market would get a little skittish when auto giant General Motors confirmed yesterday it is pulling its advertising, about $10 million, from Facebook because it has determined that the ads "are not cost effective" and that the "paid ads had little impact."

One hundred billion dollars is a lot of money. If the emperor has no clothes, now would be a good time to climb the steps of Wall Street and start screaming Mr. Zuckerberg is naked ya'll! Is there an inherent weakness in Facebook with respect to advertising? If so, says a gaggle of Wall Street pundits, then the company is being overvalued. Let's see if an advertising expert can shed a little light on the subject.

First of all, let's consider the source. Yes, General Motors is a huge advertiser. Published reports say they spend around $1.8 billion a year to get you to buy Cadillacs, Chevys, Buicks and GMC trucks. But, in December, they fired their social media agency of record Big Fuel which has been quoted as saying that "GM never seemed persuaded of the value of social media in general and Facebook likes in particular."

By industry accounts, the campaign work done by the agency didn't perform. Ford Motor Company, on the other hand, had a positive experience using Facebook to introduce the unibody Ford Explorer and more recently to plug the upcoming Focus Electric. To break the tie, I called Steve Shannon, CMO of Hyundai who said they are "bullish" on Facebook and intend to increase their modest spend on the social media platform.

If Facebook's IPO falls short of investors' expectations, advertising shouldn't take the blame. Sure, Facebook is lagging by comparison to Google. According to Wordstream, people are 10 times more likely to click on a Google ad than a Facebook ad. On the other hand, Facebook doesn't yet support advertising on smartphones or tablet computers, and hasn't really focused on creating a solid advertising model, choosing instead to focus on the user experience; yet they managed to sell $3.2 billion in ads last year. You have to admit, $10 million is a little number next to that. In fact you would have to look long and hard to find advertisers who are not increasing their spending in the digital space and spending more of that dollar with Google and Facebook.

I can't speak to whether Zuckerberg understands what he needs to do to court advertisers and to build a robust advertising model for his social media platform. But I can tell you that all the ingredients are there and as of yet, there still has been no oven pre-heating or mixing. It's very likely that they'll figure it out and GM will be back as will many others. I mean you fish where the fish are, right? And 900 million is a lot of fish.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Larry Woodard is a director on the Advertising Week board and chairman of the American Association of Advertising Agencies' New York Council.

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