BUSINESS

Why Facebook and GM Should Sign a Prenup

Tickers in this article: SBUX FB TGT GM
NEW YORK ( TheStreet) -- Ever since social media giant Facebook(FB) lost General Motors (GM) as an advertising client prior to its initial public offering, the social media company has been working extremely hard to prove that not only is its site an effective advertising platform, but that it can produce a superior return to traditional outlets such as print media and television.

GM, which has a significant annual advertising budget of approximately $3 billion, until recently has been advertising on Facebook for four years -- spending close to $40 million for combined advertising as well as creative and management service fees.

Reconcilable Differences

Along with Google(GOOG) , which is the Internet's most widely visited site (with Facebook coming in a close second according to elexa.com) there is no shortage of advertising clients. So since Facebook generates one of the top advertising revenue figures on the Internet, losing GM did not register as a significant blow as much as it was to the company's ego -- particularly as it arrived just weeks ahead of its "larger than life" IPO.

We all know how that turned out.

Facebook has had to deal with an embarrassing public relations nightmare created by GM when, in May, Joel Ewanick, GM's chief of global marketing, said the company saw little impact in terms of consumer car purchases from paid ads on Facebook.


This immediately prompted questions about the effectiveness of ads on Facebook. The situation was further exacerbated when it was revealed Facebook has been shedding users over the past several months to the extent that people were wondering if Google's own social media platform, Google+, could have been the reason for the decline .

These concerns prompted Facebook to release a report where, according to NYTimes.com, it highlighted its advertising success stories from companies including Target(TGT) and Starbucks(SBUX) .

Apparently this report convinced GM to rekindle its friendship. It is rumored that both companies are now talking about renewing their vows after the recent public, albeit one-sided, divorce.

Renewing the Vows

Sources say those involved in the discussions, which date back to the end of June, were Facebook Chief Operating Officer Sheryl Sandberg and Daniel Akerson, GM's CEO. Investors received confirmation of these talks when Greg Martin, a spokesman for GM said, "The discussions are back on" but he gave no other details.

It remains to be seen where the discussions go from here. However, I would imagine the fact that it appears Facebook's growth peaked in November should be a factor during the negotiations. In fact, I think it might be wise for GM do the right thing this time and include a prenuptial agreement.

I say this because comScore, a site that specializes in Internet data and research, recently revealed a drop in Facebook's unique visitors. While it was not a significant drop, the research firm did suggest it would last longer than anyone could have anticipated.