As bankers and investors run the numbers in the final hours ahead of Facebook's IPO this week, it's a story that has generated a predictable amount of debate about the social network's future advertising prospects.
Apparently, GM is continuing to support Facebook pages for its brands, but a spokesman said that the company had "reassessed our Facebook advertising plans and, by mid-year, we will no longer be advertising on Facebook". Mind you, almost as soon as GM voiced its scepticism, its rival Ford came forward to say that it was upping its adspend on Facebook. "It's a growing and critical part of our media mix," the car giant's marketing director, Matt VanDyke, said. So take your pick on what it all means.
But GM is not alone. As other marketers ramp up their Facebook spend, they are having to justify more accurately to their boards and shareholders the return on this increased investment; some say Facebook has been too slow to respond to demands for more transparency on ad effectiveness. Driving awareness on a site with 900 million users is a pretty clear marketing opportunity, but many clients say they are still sceptical about ad awareness and effectiveness on Facebook, particularly for big-bucks brands such as cars. Though Facebook is now working with Nielsen and comScore to track ad impact, it's harder to measure big one-off purchases that might result from exposure to ads on the site.
All this is important context for the IPO. Facebook's first-quarter ad revenues were up 37 per cent year on year to £872 million, though that was down more than 7 per cent on the previous (Christmas run-up) period. Some analysts reckon Facebook will have to drive ad revenues by more than 40 per cent a year across the next five years to justify its predicted valuation of more than £100 billion (ten times WPP's market valuation, for comparison). Facebook's mobile ad strategy will be critical. Its IPO filings show that the number of people using Facebook is growing faster than the company can deliver ads to them, and this is particularly true on mobile, where it has been slow to develop a convincing ad model. And history suggests platform leaders struggle to translate their advantage into the next wave of technological advancement - from mainframe to web, now to mobile, dominant players have lost their edge.
But whatever angle you assume, Facebook's IPO this week will be magnificent. One example: according to the Huffington Post, Facebook is expected to drive one-fifth of the growth in California's personal income this year and the state could receive $195 million when Mark Zuckerberg exercises his option on 60 million shares. No wonder his co-founder Eduardo Saverin has just renounced his US citizenship, saving himself hundreds of millions of dollars in post-IPO taxes.
claire.beale@haymarket.com