Should You Be Concerned About the Latest Facebook Scandal?

On July 30, a custom online store creator called Limited Run effectively accused Facebook (Nasdaq: FB  ) of extortion, and came just short of accusing the social network of fraud.

In a post that has since been deleted, Limited Run, known at the time as "Limited Pressing," said that it had trouble verifying the source of roughly 80% of the clicks on its Facebook ads. Separately, the company claimed a rep said Facebook would need a $2,000 per month ad spending commitment in order to change its name.

Limited Run has since taken its business to Twitter, where it says it won't be "shaken down." Facebook, for its part, has issued a statement to News.com, but it does little to answer accusations:

"We're currently investigating their claims. For their issue with the Page name change, there seems to be some sort of miscommunication. We do not charge Pages to have their names changed. Our team is reaching out about this now." [Emphasis added.]

A miscommunication? Uh-oh.

I see two problems here. First, someone took the time to try and log Facebook click traffic and found the results troubling. Google (Nasdaq: GOOG  ) has spent years fighting so-called "click fraud" with increasingly sophisticated tools. salesforce.com (NYSE: CRM  ) and Jive Software (Nasdaq: JIVE  ) have built entire businesses out of measuring the impact of clicks, tweets, and posts. The social network has to be at least as good as these peers at demonstrating value, but if Limited Run is correct, Facebook lacks many of the tools advertisers need.

Second, while I don't doubt that there was a "miscommunication" over the terms for changing a page's name, the accusation comes at an awful time. Facebook just reported zero profit gains on a 32% year-over-year jump in revenue in the second quarter. Results like that make it too easy for skeptics to believe a rep would pressure a customer into buying more ad space.

Who's right? I think there's a grain of truth in what both Facebook and Limited Run are saying, and that's troubling to me as one who still believes in the social network.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google and salesforce.com at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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  • Report this Comment On August 10, 2012, at 11:57 AM, TMFRedRam wrote:

    After writing this, I've noticed that it is a) long and b) technical. Sorry.

    I can't speak to the charge for changing a page name (though I'm guessing it's just Limited Run using a dishonest marketing firm), I can explain the clicks. Or at least a version of that problem that I've seen before.

    Usually, when a small business tries to match up its FB reported clicks to its own clicks, it will have a discrepancy. I imagine that Limited is using Google Analytics (GA) on its own page to track clicks. What you'd love to see is that when FB says, "We sent you 500 clicks" your GA would show 500 clicks from FB.

    That's not going to happen.

    GA probably shows something like 350 clicks. The problem is that people are browsing FB securely, these days. That means that the data FB transmits to my computer is encrypted, to cut down on the danger of personal data being intercepted. It's signified in your browser by the prefix 'https', and you can default to browsing in secure mode now on FB.

    What happens is that a person browsing securely clicks on the link and goes to the Limited page. That should be recorded as an incoming click from FB. Then FB would say, "Sent you 1 click" and GA would say, "Received 1 click." But because the link is coming from a secure page (with the https) to a non-secured page (the company's page) GA can't see where is came from.

    Basically, the secure page is refusing to share its information, so that if I browse from my email or bank to another site, that site can't learn anything personal about me. As a result, the GA report will not show a click from FB. That click will instead be recorded as though the user had typed the address of the business directly into their browser.

    Anyways, the short story is that the numbers don't line up anymore, and hat's likely the source of the issue. I doubt FB is engaged in wholesale theft.

    Cheers, Andrew

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