<i>>Advertisers pay Facebook on the assumption that the people viewing and clicking their ads are real. But that’s often not the case.</i><p>Actually, advertisers already <i>know</i> there are lots of fake (Facebook/Twitter/Snapchat) accounts. Likewise, advertisers also know that newspaper & magazine circulation numbers are inflated (even though the circulation #s are "audited"). Ad buyers also know that tv audience sizes are inflated as well.<p>What matters in the end is if there's a positive ROI on the ad spending. The advertisers can measure the uptick on sales and if the ads worked, they renew their ad spend on Facebook. The majority of Facebook revenues come from <i>repeat business of advertisers</i> who already know about fake users. In contrast, if the majority of Facebook revenue were to come from <i>1st time ad buyers</i> that were easily fooled by fake accounts, that's when the false user count would drastically affect revenue.<p>I'm the last person to defend Facebook but just wanted to highlight how advertisers think. For the Facebook ponzi scheme to fall apart, the ads have to <i>stop working</i>. This has happened before. In the 1990s, advertisers were buying Yahoo banner ads. But after the initial novelty of naive web surfers clicking on them, advertisers quickly realized banner ads were worthless. As a result, Yahoo revenues plunged.
This was an interesting piece. The author pretty clearly states upfront that he's been criticizing MZ for years, which I found to be strangely refreshing as opposed to trying to claim a neutral position.<p>As far as the account fraud is concerned, I've wondered about this throughout the tech industry for pretty much my whole career. Most companies I've worked for have done all kinds of things to pad usage and retention stats in order to appease investors, ranging from ethically innocuous to "holy shit I need to start looking for a new gig". Online advertising in particular has been the worst at this in my professional experience.<p>What's being communicated to the advertiser isn't the whole truth: it's a selectively, surgically crafted subset of the truth. The first time I saw "The Big Short", I couldn't help but think about how similar the ad company I worked for behaved like the credit rating agencies. We knew that if our reporting showed that we were ineffective, we'd lose customers, so we did all kinds of things to make the reporting look good.<p>The accusation that one of the largest companies in the world is doing pretty much the same thing doesn't surprise me at all.
I don't see the evidence here as being compelling at all.<p>Even if you could prove that Facebook is filling the gaps between new users and churned users by creating fake accounts, you also have to draw a line between those fake accounts and the company's bottom line.<p>Fake accounts don't buy products, so if advertisers are making decisions off of CAC, numbers potentially inflated by fake accounts (reach, clicks, engagement, etc.) are secondary.<p>Facebook's ad power comes from their egregious data collection and lack of privacy concerns. The more they know about you, the more relevant your ads will be and the more likely someone seeing your ad will be to buy. And if advertisers can draw a line that says "if I spend $50 on Facebook ads, I'll increase my bottom-line line $100", they'll spend money until it's no longer profitable to do so.<p>That said, it's not like all Facebook advertisers are acting rationally in that manner. I don't know what % of Facebook revenue to coming from unsophisticated advertisers, so it's possible that they could be making a lot of money from people focusing on fuzzy metrics like reach.
It's important to understand that Greenspan (who, incidentally, comments on hacker news a fair bit as <a href="https://news.ycombinator.com/user?id=thinkcomp" rel="nofollow">https://news.ycombinator.com/user?id=thinkcomp</a> and submitted this link) is not an unbiased observer here. He's had an ongoing feud with Zuck/FB for years and years and years.<p>From reading his writings on this, and other topics, it's clear that he is extremely bitter about virtually all things related to Facebook.<p>See this from over a decade ago: <a href="https://venturebeat.com/2007/09/02/who-founded-facebook-aaron-greenspan/" rel="nofollow">https://venturebeat.com/2007/09/02/who-founded-facebook-aaro...</a><p>He also undertook a multi-year quixotic series of lawsuits against California and other entities over what he felt were unfair regulations on money services businesses.<p><a href="https://www.upcounsel.com/blog/aaron-greenspan-versus-silicon-valley" rel="nofollow">https://www.upcounsel.com/blog/aaron-greenspan-versus-silico...</a>
Lying to advertisers would not make Facebook a ponzi scheme. A ponzi scheme is when early investors get paid with "profits" that are actually later investors' money.<p>No one is doubting that Facebook is making genuine revenue, although they may be misleading people to earn that revenue.
About a year ago we had to pretty much shut down FB advertising as we simply could not come close to rectifying the click numbers they were reporting to us. That trust broke down much further when you considered conversions and more human-like activity down our funnels.<p>That said, for another business, FB is absolutely killing it for us.<p>The difference is in target market size and niche.
Really enjoyed the article, but have to point out the obvious: Fraud =/= Ponzi scheme. Ponzi schemes are a payout model where money from later investors is used to pay off earlier investors.
There are so many ways in which I'd like to contradict this article, but I'll stick to just one.<p>> While they reveal a problem escalating at an alarming rate and are constantly being revised upward .. in Q2 2017<p>In Q4 2017 the method for measuring the prevalence of fake accounts was changed to something more accurate. The number of fake accounts wasn't "escalating at an alarming rate", it was comparable to the number in the previous quarter.<p>Source: I worked on that change.
While this raises some good points, it's worth mentioning the history between Aaron Greenspan and Facebook:<p><a href="https://www.nytimes.com/2007/09/01/technology/01facebook.html" rel="nofollow">https://www.nytimes.com/2007/09/01/technology/01facebook.htm...</a>
Similar post from a few hours earlier, with 43 comments currently: <a href="https://news.ycombinator.com/item?id=20505885" rel="nofollow">https://news.ycombinator.com/item?id=20505885</a>
I'm no FB apologist, but I take issue with this:<p>> <i>fake account problem … Google Trends shows worldwide "Facebook" queries down 80% from their November 2012 peak.</i><p>Except that much of this downturn in people googling "Facebook" is explainable by the shift to mobile. Surely no one needs to Google "Facebook" to open the Facebook app on their phone’s home screen. (For that matter, one doesn't even need the app icon when one is receiving push notifications from FB. No legit notifs? No problem, FB will synthesize fake ones.)
Misleading title, weak arguments, no evidence. Just click bait . Facebook saw huge growth since 2012 by acquiring Instagram and monetizing mobile, and also from increased advertising. Facebook does not need more accounts to grow, but rather by making more money from existing users.Terrible article.
At the risk of sounding like a devil's advocate (that isn't my intention), if there really were this much fraud, wouldn't it shake out in the economics? i.e. if you aren't getting your money's worth from the Facebook ads you're buying, wouldn't you notice?
I was getting a half dozen obviously fake friend requests on IG every day until I set my account to private. These were invariably users like “TatianaXXX6969” or “SexySvetlana1727288”. Seems like the easiest kind of fake account to block (so much for AI and ML). I deleted my FB two years ago and I think IG is next.
Interesting to discover the author is a classmate of Zuckerbro and claims to have invented Facebook. Which seems to have led to a career of writing articles like these.
Excluding the personal attacks, which dilute what would have been a good alternative look at Facebook, I suggest everyone interested in this topic to look at the other parts that make up the click-fraud industry:<p>- Clickfarms in China that have shady people using some automation and thousands of smartphones to perform fake clicks for the Chinese ad market<p>- Pied Piper style farms with people in poor countries sitting all day creating accounts (it was exaggerated in the series)<p>- The ad giants constant "battle" with click-fraud<p>- Shady tactics used by smaller app/websites to get people to accidentally click on ads<p>I wouldn't personally denounce all online advertising though. It has its place the same way print media advertising does. It's market-value is questionable though (which is derived from questionable "effectiveness" sales pitches we're told about online advertising)
> Aaron Greenspan is short Facebook stock.<p>The author seems to be talking up his portfolio. Although there may be truth to this article, it seems the author is attempting to move the stock price with negitive press.
He keeps referencing total number of user accounts. This is a bad number to track, precisely because of fraud, duplicate, and unused accounts. A better number is something like monthly or daily active users. Then you can randomly sample a subset of these users and manually determine the number of fake accounts to give you a confidence interval on the total number of real daily active users, which for investor/shareholder purposes, is much better to use than total accounts anyway.
Time will tell whether the author, Aaron Greenspan, who knew and interacted with Zuckerberg at Harvard, is right or wrong. Given the lack of good, transparent data, it's hard for me to judge the prevalence of ad fraud. I suspect it's hard for many ad buyers too.<p>In the meantime, the OP and comments here remind me of the reaction of a media executive, Mel Karmazin, upon realizing, back in 2003, that Google could measure the effectiveness of advertising:<p>> Karmazin and the networks continued to charge steep rates because, Karmazin says, "advertisers don't know what works and what doesn't. That's a great model." But it's a model, the Google executives told him, that is horribly inefficient. Karmazin, before departing, trained his eyes on his Google hosts and blurted, only half in jest, <i>"You're fucking with the magic!"</i>[a]<p>Perhaps new media companies like Facebook have come to the realization that they too should not be "fucking with the magic," to use Karmazin's colorful language.<p>--<p>[a] <a href="https://www.npr.org/templates/story/story.php?storyId=120389927" rel="nofollow">https://www.npr.org/templates/story/story.php?storyId=120389...</a>
While I do believe that Facebook is indeed lying (about virtually any question you mask it, including user numbers), I think it is meaningful to ask:<p>"Are advertisers getting enough performance out of Facebook ads to justify the expense?"<p>The answer could be Yes. It's also possible that many of the companies aren't managing their expenses well, and that they don't know (but still have enough cash, whether from stock market "play money" or VC (SV play money)).<p>There's no effective answer to the implied question, "How can we stop Facebook from being evil?" Even if the poisonous head of the snake is cut off, there is enough financial interest for remaining executives (and board) to continue along the same general path.<p>My answer is this: smart startups identify the key value features of Facebook and implement them independently. This is a long play, but it could work.<p>One example is how Facebook is used for communication and coordination of groups that share common interests. In this example, it's really just a little bit of communication features missing from meetup.com to replace this (and be better than what Facebook offers).
Argument could potentially be interesting save for the fact that the pudding really is in advertiser repeat business. The metrics (of click per ads, fake accounts, what have you), are utterly irrelevant. If advertisers keep coming back for me, Facebook has a viable business. And, until now, that seems to be the case. Maybe there's just tremendous lag in the feedback loop for business to see that there's no value in FB advertising and they'll experience a reckoning down the line, but it's been around FOR A WHILE, and ad revenue is strengthening, not declining.<p>Again, it's important to disassociate that and the claims that it is a Ponzi scheme and unsustainable business. Both of these things can (and I think probably are) true: Facebook can have a much bigger privacy/fake account problem than it lets on AND also have very real, sustainable revenue from advertising. These things aren't mutually exclusive.
I know people who spend large budgets on Facebook and Google ads. What I hear almost universally is that they aren't effective, yet everyone feels compelled to pay for FB ads and Google ads because they see everyone else doing it. The customers I have spoken too feel that it simply isn't working but they're afraid to stop buying the ads for fear of slipping into online oblivion. Numerous people have shared the same experience with me and nobody is happy. Now there is the chance that I just happen to know only statistical outliers, the people who pay a lot of money and feel they aren't getting anything in return but feel compelled to continue. Maybe I just happen to know a dozen or so very unlucky resentful people. I don't have solid "evidence". It's all anecdotal. That said, this experience I've just described is most likely common and hardly unique.
FTA:<p>>In other words, Facebook is growing the fastest in the locations worldwide where one finds the most fraud. In other other words, Facebook isn’t growing anymore at all—it’s shrinking.<p>Look I hate Facebook as much as the next guy but this is clearly specious logic. The existence of fraudulent accounts does not preclude growth in new accounts.
My naive question here re: fake accounts + advertisers is why should I care? If these big corporations want to blow their money shouting about gay scuba diving into the ether, what's the harm?
For those out of the loop and feel like this essay feels a bit “bitter,” Aaron Greenspan, the article’s author claims that he invented the idea behing Facebook back in 2003.
Saying it's a Ponzi scheme is a stretch, any business knows that FB provides the most targeted ads because of all the user data they have access to.
That is some massive reification for fake accounts - just because they are named the same doesn't mean they are similiar.<p>There is a massive difference between "letting people create accounts for their pets, spammers put up fake accounts" and "fake financial accounts out of whole cloth to create false profits".
This is the first time, in my life, that I've seen an article criticizing Facebook's business practices without having a 'like on Facebook' icon.<p>Fortunately there is a Twitter icon, so you can rest safe knowing this outraged person is still giving free publicity to a social media company.
Whatever one thinks of the article or its case, this is an interesting thread. I've turned off the flags on it and, because some people were presumably flagging because of the baity title, replaced that with a representative phrase from the article.
First: advertisers know about fake accounts.<p>Second: it's not like investors are somehow unaware that FB cannot grow forever. In 2013 the PE ratio was more than 120, and it is now 30. That is investors adjusting their expectations about future growth.
the same kind of accusation was poisonning google ads for a long time but it was called click fraud. numerous customers were suing google over billing them for fake clicks. Ultimately, google proved to be better than other sources of online advertising regarding fraud detection, and so people continued to buy ads.<p>The problem is the same for facebook. Major advertiser track clicks up to purchases over months , sometimes years. So they are perfectly aware of which users are bogus, which impression are actually never seen, etc.
Ultimately the only thing that counts is whether the investment is worth it.
I always log in and out of FB on a computer in one browser type and don't have it on any phones. One thing that always strikes me as odd:<p>Click your picture or add an account, and
Add account
and in big type: Create a new account. It's free and always will be
(un etc fields, birthdate)
The whole front page is set up to encourage multiple accounts and presumably easy to automate the creation of thousands of fake accounts, which as we know is very prevalent.
Great hard hitting article Aaron.
It's interesting that at footer of the page in hebrew it says:<p>אריכות ימים חברתית דרך האמת וחדשנות<p>"Social longevity through truth and innovation"
I advertise on Facebook and I have no idea what the Facebook user growth numbers are - and I don't care. We advertise on Facebook because it works. We pay money to Facebook and acquire new users for our product in return.<p>Facebook actually under-reports the ROI for us (we acquire 2x more customers through Facebook ads than Facebook says we do), because ad blockers block the Facebook tracking pixel.
>namely, genocide, a role in putting a fascist, white supremacist in the White House<p>A lot of people stopped reading the article right there.<p>Writers like this only reach a certain audience.
This explains quite a few things about Facebook.<p>Sheryl Sandberg hasn't been thrown overboard because if she is thrown overboard she might talk.<p>Mark Zuckerberg won't allow the appointment of an independent Chairman of the Board because one thing about people who run Ponzi scams is that they try to keep as small a circle of people as possible in control so that news won't leak out.
> So what is that magical ingredient, that secret sauce, that “genius” trade secret, that turned an over-funded money-losing startup into one of America’s greatest business success stories?<p>False. Facebook made $50M in profit the year before it took its Series A. It has always been a profitable company[0].<p>[0] <a href="https://www.macrotrends.net/stocks/charts/FB/facebook/profit-margins" rel="nofollow">https://www.macrotrends.net/stocks/charts/FB/facebook/profit...</a>
Some embarrassingly very ignorant statements here by Greenspan.<p>> a company that was out of users in 2012 managed to find a wellspring of nearly infinite and sustained growth that has lasted it, so far, half of the way through 2019. So what is that magical ingredient, that secret sauce, that “genius” trade secret, that turned an over-funded money-losing startup into one of America’s greatest business success stories?<p>Facebook has been wildly profitable since approximately the end of 2008. Five years after its founding, in 2009 - long before Greenspan's setup premise - they turned a $229m profit on $777m in sales. For fiscal 2011 that was a billion in profit. Any start-up in world history would be envious of that extreme profitability so early into existence.<p>In terms of millions of daily active users or users in general, Facebook wasn't suffering in terms of growth in 2012 or 2013. Greenspan is flat-out lying here. They went from 483 million daily active users at the end of 2011, to 665 million at the end of 1Q13. They added 135m daily actives in 2012, 28% DAU growth after eight or nine years. A strong number given their immense size at that point.