A new lawsuit is claiming that Facebook inflated its estimates for potential advertising reach to increase revenues.
According to the suit, Facebook executives, including its Chief Operating Officer Sheryl Sandberg were aware that ‘Potential Reach’ figures – which is the number of people that might see an advert – were not accurate. The lawsuit even claims that attempts made by Facebook employees to correct the estimates were held back by executives.
The class action suit was filed in 2018 by a small business owner and recently unsealed and made public, revealing the alleged scale of how the figures were exaggerated.
One advertiser was informed that the Potential Reach was 230 million US adults, out of a total of 250 million US adults, according to census data. However, a Pew Research study from 2018 claimed that only 170 million US adults used Facebook.
Facebook has also told advertisers, according to the suit, that it can reach 100 million 18-34-year-old Americans, despite census data saying there are only 76 million in the country.
As such, the Potential Reach figures count the total number of profiles, and do not attempt to distinguish between real people and fake or duplicate accounts.
The suit quotes an unidentified Potential Reach product manager as saying: “It’s revenue we should have never made given the fact it’s based on wrong data.”
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With around 2.75 billion people on Facebook, the social media platform claimed to have removed billions of fake accounts per year, with around 5.5 billion being removed in 2019. However, despite advances in technology, the company estimated that nearly 5% of its monthly user base are fake.
One of the suggested changes was to say that Potential Reach is a measure of accounts, rather than people, though this was nixed over claims it would reduce Facebook’s advertising revenues.
Facebook has claimed that the Potential Reach numbers are merely an estimate.
The judge presiding over the case has refused to dismiss the fraud claims and has told Facebook it should prepare for trial.
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This is not the first time Facebook has been sued over how it sells its services. In 2016, advertisers sued the company over claims that it failed to disclose data errors in its video metrics.
According to the suit, the company overstated its video viewership by 150-900% as it failed to account for users scrolling past videos or watching for a very short time. In addition, the suit said that Facebook downplayed the problem despite being aware of it.
Facebook settled the suit in 2019 for $40 million.
The final quarter of 2020 saw big tech companies like Facebook, Google and Amazon make large profits off a renewed appetite for advertising spending. With advertising contributing almost 97% of its fourth quarter revenues, Facebook made over $28.07 billion, around 33% more than the same quarter of 2019.
A report from Omdia claimed that global online video advertising is set to grow from $70 billion in 2020 to $120 billion by the end of 2024. Facebook and YouTube combined currently take around 49% of this revenue, with this share set to grow. For total online advertising spending, Facebook and YouTube’s owner Google account for 60% of ad spending.