Facebook's GM Problem

GM's decision to stop buying Facebook ads is a hint at how the social network will have growing pains.


Social media giant Facebook may barely notice the lost revenue from General Motors' decision to stop spending about $10 million per year on advertising that runs on its site. But GM's withdrawal reflects the turbulence and uncertainty that even the most successful companies face these days—especially in technology.

GM's withdrawal isn't the start of a stampede of big advertisers away from Facebook. For many companies—especially those targeting young consumers—Facebook remains an appealing place to advertise. But Facebook is not immune from market forces, and GM's decision highlights two types of pressure Facebook is likely to face in the near future as it becomes a regular company and drifts back down to Earth.

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First, Facebook has enjoyed a kind of honeymoon period in which it had an effective monopoly on what it does—largely because it invented the category of universal social networks. But revolutionary new companies like Facebook (and Google, and Yahoo, and Apple, and Microsoft) always face competition as others get in on the game.

In terms of advertising—the company's main source of revenue—Facebook's competition isn't necessarily Google Plus, a copycat network some have compared to a ghost town due to its weak usage. The real competition is every other venue open to advertisers, including the Web, mobile devices, and boring old print and broadcast media. As the novelty of Facebook wears off, advertisers will no longer be willing to spend money advertising there as an experiment. The same cost-benefit metrics they apply to other venues will kick in, which is apparently what happened at GM.

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Second, technology changes so fast these days that not even the "disrupters" are immune. In fact, the disrupters can become the disrupted in record time. A prime example is Blackberry, which had a large share of the smartphone market just a few years ago, but has been blown out of the water by Apple's iPhone and Google's Android phones. Another example is Netflix, which basically changed the way people rent movies and effectively drove Blockbuster into bankruptcy. But just a couple years later, Netflix's rapid growth has stalled and it faces its own disruptive competition from Amazon, cable networks and other Web and mobile apps.

Facebook is far from being irrelevant, but investors know it's a risk, especially if Facebook fails to cleverly innovate in the future. Facebook itself knows this, and basically said so in public documents relating to its initial stock offering, where it acknowledged that its mobile strategy is immature. Also, Netflix CEO Reed Hastings is a Facebook board member, so he can personally testify to how fast new technology can go from asset to liability.

All of this, however, tends to be good for consumers. It will force Facebook to continue offering new features to keep its users engaged, while assuring them that it adequately safeguards their personal information. If Facebook can manage that, GM might be back some day.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success. Follow him on Twitter: @rickjnewman.