Will General Motors Make or Break Facebook's Mobile Ad Platform?

General Motors announced that it will start buying ads on Facebook's mobile platform. Does that make Facebook stock a buy?

Steve Symington
Steve Symington
Apr 13, 2013 at 2:15PM
Technology and Telecom

On Tuesday, General Motors' (NYSE:GM) marketing VP, Chris Perry, said his company will resume buying Facebook (NASDAQ:FB) advertisements for the first time since last May.

The new ads -- which are part of a GM advertising "test program" -- will feature the Chevrolet Sonic, an entry-level subcompact car with which GM is targeting younger buyers given its "youthful style and driving experience."

General Motors 2013 Chevy Sonic

2013 Chevrolet Sonic RS. Photo: GM.

Given the younger target audience for the vehicle, I suppose it should come as no surprise that GM is only taking advantage of Facebook's mobile ad platform for now.

So why's this a big deal?
Last time around, while GM was more than happy to keep its free Facebook page alive, the automaker made the high-profile decision to stop paying for ads on Facebook just days before the social network's much-hyped initial public offering.

Of course, that wasn't the only reason many considered Facebook's IPO an absolute disaster, but the ill-timed demonstration of a lack of confidence in the company by GM certainly didn't do it any favors. As a result, Facebook undertook a concerted effort to prove the worth of its advertising platform and of late has placed increasing focus on further developing its mobile offerings.

Sure enough, Perry called out Facebook's recent labor as one of the big reasons GM is dipping its huge toes back into the ad pool, saying the program "utlizes newly available targeting and measurement capabilities on Facebook" -- probably a reference to Facebook's new "Custom Audience" advertising tools that fellow Fool Chris Neiger highlighted last month.

The upside
On one hand, just as many of us were concerned about the wider risks of other companies following GM's lead out of Facebook ads last year, we shouldn't underestimate the positive effects of this week's news. However small its investment, the fact remains that GM consistently occupies a perennial spot in the list of the largest advertisers in the United States.

As a result, GM's vote of confidence is worth much more than the money it spends and greatly improves Facebook's chances of convincing other companies that its platform is worth their dollars.

The risk
On the other hand, what if GM ultimately decides Facebook's mobile ad platform isn't as effective as both companies had hoped? After all, regardless of how useful Facebook says its new tools are, it's the advertisers who have the final say.

If GM pulls the rug out from under Facebook, it'll be back to the drawing board for the social-networking giant, which desperately needs to show the world it knows how to monetize the more than a billion monthly active users on its site.

In the end, Facebook shareholders should keep a close eye on what GM thinks of the platform; one way or another, its opinion could very well be a defining moment for Facebook's future.