Facebook Fakers, Beware

There's no shortage of fakers on Facebook (Nasdaq: FB  ) . That's been something of a weak point for the social networker since all one needs is an email address to sign up, and we all know how easy those are to come by.

Fakes also present a challenge for its advertising business, because advertisers aren't too keen on pitching to fake people. You may be able to talk your imaginary friends into doing all sorts of things, but convincing them to buy things usually proves unsuccessful, unless imaginary dollars have become a viable currency (I'm rich!).

Imaginary army
We're not just talking about a handful of fakes here, we're talking about tens of millions of make-believers running amok "liking" pages and gallivanting unsupervised. At the end of June, Facebook estimated that 4.8% of its worldwide monthly active user base was "duplicate" accounts.

But wait, there's more! Facebook also categorizes "false" accounts into two buckets: 1) user-misclassified accounts, and 2) undesirable accounts. An example of a user-misclassified account would be someone setting up a page for their dog, and an undesirable account would be a spammer.

The company ended last quarter with 955 million MAUs, so here's how these categories tally up.

Category

Estimated %

Number of Accounts

Duplicate

4.8%

45.8 million

False: user-misclassified

2.4%

22.9 million

False: undesirable

1.5%

14.3 million

Total

8.7%

83 million

Source: 10-Q.

This problem tends to be worse in developing markets like Indonesia and Turkey, and not as bad in areas like the U.S. or Australia. Either way, nearly 9% is a pretty big chunk of fake accounts, and the social network has decided to do something about it.

The crackdown begins
Facebook has begun deleting thousands of these fake accounts and "likes" in a crackdown to clean up its digital streets. It announced the initiative at the end of August, and at the time believed that an average of less than 1% of a page's "likes" would be removed. Being a big proponent of "authentic connections," Facebook's fraudulent "likes" have got to go.

Some marketing firms now even sell Facebook "likes" and the Facebook doesn't like that practice one bit. The company is also beefing up its enforcement of its real-name policy.

According to third-party Facebook page statistician PageData, some pages are seeing "like" counts drop precipitously. For example, Zynga's (Nasdaq: ZNGA  ) is seeing "likes" across many of its pages plummet this week as Facebook deletes some of its phony friends.

Page

Total "likes"

Weekly Growth

Texas HoldEm Poker

65.2 million

(113,000)

FarmVille

38 million

(124,000)

CityVille

25.2 million

(89,000)

Mafia Wars

19 million

(52,000)

Cafe World

11.1 million

(20,000)

Source: PageData. Figures rounded.

Here's a chart of FarmVille "likes" this month, one of the social gamer's biggest titles.

Source: PageData.

Given that Facebook sometimes has the occasional privacy scandal, some Facebookers use fake names simply to protect themselves.

It's also become common practice for prospective employers to peruse candidates' Facebook pages or Twitter tweets for the scoop on who they might be hiring. Employers will also check LinkedIn (NYSE: LNKD  ) , but that's expected for a professional networking site. That site has some fake profiles as well, but it's not nearly as rampant and isn't listed as a specific risk factor in its SEC filings like it is with Facebook. Plus, LinkedIn's whole purpose is to connect job candidates with jobs, not advertisers with customers, so there's less incentive to fake it.

Easy peasy
It's a tough balance, since much of the Internet itself is founded on anonymity. Facebook wants to make its service as easy as possible to sign up for, asking for just a name, email address, password, gender, and date of birth (to comply with its age requirements).

But making sure people are giving real names will prove increasingly difficult. Especially when users can change their names with just a couple clicks.

Source: Facebook.

Fake accounts are certainly a challenge for Facebook, but it still has incredible potential for investors waiting for the right time to invest. I've been keeping a close eye on the social network's fundamental business and have provided this comprehensive report outlining everything a current or prospective shareholder would need to know. Click here to get started and we'll send you regular updates as things develop.

Evan Niu, CFA, has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and LinkedIn and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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