Yesterday, Facebook announced a new search engine internal to the ring-fenced world of Facebook. For example, you could search to see if your friends "like" a movie. Too bad users can't rely on the search results to be true, and advertisers can't rely on them, either.
Fabricated Likes Make Advertisers Look Bad
Last month, while wasting a few moments on Facebook, my pal Brendan O'Malley was surprised to see that his old friend Alex Gomez had "liked" Discover. This was surprising not only because Alex hated mega-corporations but even more so because Alex had passed away six months earlier.
The Facebook "like" is dated Nov. 1, which is strange since Alex "passed [away] around March 26 or March 27," O'Malley told me. Worse, O'Malley says the like was "quite offensive" since his friend "hated corporate bull****."
That doesn't just make Facebook look bad, it makes Discover look bad, too. Users quickly figure out that "sponsored stories" have no credibility, and once credibility is lost, it's difficult to regain it.
Questionable Advertising Results
In an earlier commentary, I noted that one advertiser's own research showed that Facebook was charging it for bot clicks. It wasn't accusing Facebook of being the source of the fake clicks--anyone, including Facebook might have created the bot clicks--but the allegation is that Facebook charged the advertiser for the fakes, and it should have screened them out.
Other advertisers are spending less because results are disappointing. The L.A. Times reported that just as General Motors, the third largest U.S. advertiser, pulled all of its $10 million in advertising for lack of results; the entertainment business is souring on Facebook, too. Film executives are considering cutting their ad spending and are miffed that Facebook is asking them to pay for exposure they previously got for free.
Facebook is an ad supported web business, and its costs to find and keep users are going up while its per-user revenue is declining.
Inflated Traffic Figures
In an earlier commentary, I wrote that it seems to me that Facebook inflated its genuine user numbers (wildly underreported fakes) at its IPO, and that the problem is ongoing. Since writing my earlier commentary citing my unscientific survey: "Facebook's Fake Numbers: 'One Billion' Users May Be Less Than 500 Million" (Huffington Post -- December 12, 2012), and after a Facebook spokesman responded to it (see update within the commentary in which the Facebook spokesman responds... but not to the numbers), I was amused to see that the Facebook "like" icon number in the upper right corner on Huffington Post dropped from 363 to 127. Perhaps Facebook is weeding out fake profiles and responding to my numbers after all. (Let's see, if I apply that ratio to "one billion" users, that would leave around 35 percent or 350 million genuine users. Well, it seems Facebook and I are in agreement!)
Facebook has a big problem with fakes, impostors, and double/triple/quadruple counting of multi-platform fakes and users. If Facebook wants to claim it has one billion genuine active users, then it must defend that seemingly wildly inflated figure. To me it appears to be mostly baloney.
My point is that as an advertiser, you cannot be assured that you are targeting real people, that the "likes" reported are real, and advertisers should independently verify that charges aren't from bot clicks. There's also no reason for you to take Facebook's assertions of advertising effectiveness as genuine. It seems to be very generous in claiming cause and effect for advertising revenues, but it's interesting to note that an experienced advertiser like GM doesn't spend on Facebook, but it spends advertising dollars on Twitter.
Facebook Is Less Popular than Tumblr with the under 25's
Never trust anyone over 25 may be the motto of the 13-25 year old demographic, and Facebook is showing Zuckerberg's age (29). (I'm under 25, since I use base-30 when I calculate it, but for everyone else I use base-10. If that doesn't seem fair, then consider that it seems to me that Facebook has been reporting genuine users using base-9, if not base-8, and the SEC expects it to use base-10.)
A survey by Y Combinator start-up Survata found that 61 percent of teens aged 13-18 use Tumblr on a regular basis. Only 55 percent of them reported using Facebook on a regular basis (there's overlap). Minors are showing a clear preference for Tumblr. In the 18-25 age group, 57 percent use Tumblr on a regular basis, and only 52 percent use Facebook on a regular basis. There's some usage overlap, but young people prefer Tumblr.
According to SocialBakers, around 1.4 million Americans stopped using Facebook in December. It still reportedly has 167 million users, but how many of those are fakes, imposters, or multiple counts due to multi-platform users?
Adblock Plus Blocks All Facebook Ads for Android
If all of the above weren't bad enough for Facebook, its already problematic mobile ad strategy had been dealt a blow by Eyeo's Adblock Plus for Android, since it can block all of your Facebook ads in all of the apps.
Investors' Bottom Line
Facebook brings in money but so far not enough to offset accounting losses. Its business model doesn't seem to justify its high valuation, since it hasn't demonstrated a viable revenue growth strategy. Since the IPO, Facebook has reported losses on a GAAP accounting basis, the standard for financial reporting. Now the worst seems to be happening. It is losing users to competition and technology is ahead of it to block its so-called strategies for bringing in new revenue.
Disclosure: I've bought and monetized puts on Facebook since they became exchange-traded shortly after the IPO. ("Investors Bet on Facebook Fall," Kaitlyn Kiernan and Jonathan Cheng, Wall Street Journal, May 19, 2012.) I'm currently long other puts on Facebook.