Facebook: Mark Zuckerberg’s Fake Accounts Ponzi Scheme

Yves here. We edited this important post from a version on Aaron Greenspan’s website. Lambert reordered it to make the likely magnitude of Facebook fake accounts the starting point, which we see as the most damning evidence against Facebook. Most people accept the proposition that Mark Zuckerberg is running a less than trustworthy business that among other things, has no concern for the safekeeping of personal information. But the idea that his business looks like a Ponzi scheme is a new disclosure and merits a hard look.

By Aaron Greenspan, founder of the Think Computer Corporation1

Facebook now has a market capitalization approaching $600 billion, making it nominally one of the most valuable companies on earth.  It’s a true business miracle: 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?  It’s one that Bernie Madoff would recognize instantly: fraud, in the form of fake accounts.

Old money goes out, and new money comes in to replace it.  That’s how a traditional Ponzi scheme works.  Madoff kept his going for decades, managing to attain the rank of Chairman of the NASDAQ while he was at it.

Zuckerberg’s version is slightly different, but only slightly: old users leave after getting bored, disgusted and distrustful, and new users come in to replace them.  Except that as Mark’s friend and lieutenant,  Sam Lessin told us, the “new users” part of the equation was already getting to be a problem in 2012.  On October 26,  Lessin, wrote, “we are running out of humans (and have run-out of valuable humans from an advertiser perspective).”  At the time, it was far from clear that Facebook even had a viable business model, and according to Frontline, Sheryl Sandberg was panicking due to the company’s poor revenue numbers.

To balance it out and keep “growth” on the rise, all Facebook had to do was turn a blind eye.  And did it ever.

In Singer v. Facebook, Inc.—a lawsuit filed in the Northern District of California alleging that Facebook has been telling advertisers that it can “reach” more people than actually exist in basically every major metropolitan area—the plaintiffs quote former Facebook employees, understandably identified only as Confidential Witnesses, as stating that Facebook’s “Potential Reach” statistic was a “made-up PR number” and “fluff.”  Also, that “those who were responsible for ensuring the accuracy ‘did not give a shit.’” Another individual, “a former Operations Contractor with Facebook, stated that Facebook was not concerned with stopping duplicate or fake accounts.”

That’s probably because according to its last investor slide deck and basic subtraction, Facebook is not growing anymore in the United States, with zero million new accounts in Q1 2019, and only four million new accounts since Q1 2017. That leaves the rest of the world, where Facebook is growing fastest “in India, Indonesia, and the Philippines,” according to Facebook CFO David Wehner.

Wehner didn’t mention the fine print on page 18 of the slide deck, which highlights the Philippines, Indonesia and Vietnam as countries where there are “meaningfully higher” percentages of, and “episodic spikes” in, fake accounts.  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.  Even India, Indonesia and the Philippines don’t register as many searches for Facebook as they used to.  Many of the “new” users on Instagram are actually old users from the core platform looking to escape the deluge of fakery.

The last time Mark suggested that Facebook’s growth heyday might be behind it, in July 2018, the stock took a nosedive that ended up being the single largest one-day fall of any company’s stock in the history of the United States.  In about an hour, it plunged 20% from around $220 per share to about $165.  Needless to day, the loss of about $120 billion in market capitalization in an hour provided a sufficient disincentive for Mark to avoid a repeat performance.

Having narrowly escaped the ire of Wall Street, Mark knows he cannot get off the growth treadmill he set in motion years ago.  The only solution: lying to investors about growth in an attempt to convince them that everything is fine.

Yet signs that Mark’s fake account problem is no different than Madoff’s fake account statement problem are everywhere.  Google Trends shows worldwide “Facebook” queries down 80% from their November 2012 peak.  (Instagram doesn’t even come close to making up for the loss.)  Mobile metrics measuring use of the Facebook mobile app are down.

And the company’s own disclosures about fake accounts stand out mostly for their internal inconsistency—one set of numbers, measured in percentages, is disclosed to the SEC, while another, with absolute figures, appears on its “transparency portal.”  While they reveal a problem escalating at an alarming rate and are constantly being revised upward—Facebook claims that false accounts are at 5% and duplicate accounts at 11%, up from 1% and 6% respectively in Q2 2017—they don’t measure quite the same things, and are impossible to reconcile.  At the end of 2017, Facebook decided to stop releasing those percentages on a quarterly basis, opting for an annual basis instead.  Out of sight, out of mind.

One could argue that SEC disclosures are subject to strict regulations under the Securities Exchange Act and that Facebook would never be so bold as to lie to investors in black and white.  That’s true: it qualifies its fake account disclosures with the quizzical legal phrase “significant judgment” and it chose the color orange instead of black (insert Netflix joke here) for its transparency portal graph disclaimers that read, “These metrics are in development.”  And one could further argue that the transparency portal metrics are reviewed by a team of academics, known as the Data Transparency Advisory Group (DTAG), who are supposed to vouch for their validity. But the DTAG academics—not one of whom is a statistician, despite Facebook’s direct claim to the contrary, now erased—fully admit that they are paid by Facebook, and even after months of hard work, their final report released in April mentioned fake accounts only three times, and all three were in passing. On the accuracy or validity of Facebook’s fake account numbers, the DTAG oddly had absolutely nothing to say.

What Facebook does say is this: its measurements, the ones subject to “significant judgment,” are taken from an undisclosed “limited sample of accounts.”  How limited?  That doesn’t matter, because “[w]e believe fake accounts are measured correctly within the limitations to our measurement systems” and “reporting fake accounts…may be a bad way to look at things.”

And how many fake accounts did Facebook report being created in Q2 2019?  Only 2.2 billion, with a “B,” which is approximately the same as the number of active users Facebook would like us to believe that it has.

A comprehensive look back at Facebook’s disclosures suggests that of the company’s 12 billion total accounts ever created, about 10 billion are fake.  And as many as 1 billion are probably active, if not more. (Facebook says that this estimate is “not based on any facts,” but much like the false statistics it provided to advertisers on video viewership, that too is a lie.)

So, fake accounts may be a bad way to look at things, as Facebook suggests—or they may be the key to the largest corporate fraud in history.

Advertisers pay Facebook on the assumption that the people viewing and clicking their ads are real.  But that’s often not the case. Facebook has absolutely no incentive to solve the problem, it’s already in court over it, and its former employees are talking.  From Mark’s vantage point, it’s raining free money.  All he has to do to get advertisers to spend is convince the world that Facebook is huge and it’s only getting huger.

No one in the media, let alone Congress, dares to ask potentially embarrassing questions, and few understand the minutiae of real-time pricing auctions, cookies and user disambiguation anyway.  Everyone would rather talk about the company’s dedication to “innovation” and the laughably remote chance that Libra, a needlessly complex pseudo-cryptocurrency system will disrupt central banking.  In fact, Libra is best described as Facebook’s Business Model Plan C (Plan A having been “no privacy at all” and Plan B being “encrypt everything”), which may actually be necessary as the scheme is starting to unravel.

Mark is smart, but he’s never been smart enough to listen to those with experience.  Instead, he has prioritized growth at any cost, pulling all of the control rods out of the reactor to achieve it, and now that those costs have caught up with him—namely, genocide, a role in putting a fascist, white supremacist in the White House, and severe reputational damage—he literally has no idea what to do. His usual go-to acronyms—VR?  AI?aren’t quite cutting it, and much like Chernobyl, the resulting fallout is everywhere, impossible to clean up, and there are dead bodies on the ground.  Even his co-founder and former roommate can’t fully support him anymore, though Chris Hughes did still obsequiously refer to Mark as a “good, kind person” engaged in “nothing more nefarious than the virtuous hustle of a talented entrepreneur.”

That’s obviously false.  Mark is not a good, kind person, as I have written for years .  The only hustle he is engaged in is the usual kind: the fraudulent kind.  And if I’m wrong about any or all of this, and Facebook releases the data and methodology it is using to reach the conclusions that it has about the strength of its platform, then I will gladly admit that I’m wrong.

But I’m not wrong.  Facebook is a real product, but like Enron, it’s also a scam, now the largest corporate scandal ever.  It won’t release its data about the 2016 election, about fake accounts, or about anything material—and because Mark knows it’s a scam, he won’t agree to testify before the British parliament in a way that could require him to actually answer any substantive questions, as I did in June.  And because Facebook is also a component of the S&P 500, countless people have an incentive to maintain the status quo.

So should we break up the tech companies and Facebook in particular? It’s already a campaign issue for the next presidential election. Elizabeth Warren says yes.  Beto O’Rourke wants “stronger regulations.”  Kamala Harris would rather talk about privacy.  Everyone else—even Donald Trump—generally agrees that something needs to be done. Yet the unspoken issue at the center of it all remains: Mark is running a Ponzi scheme, but Wall Street, Congress, the Federal Trade Commission, the think tanks, and their associates haven’t figured it out.

At this point it should come as no surprise to anyone paying attention that Mark is a bad-faith actor.  He has no appreciation for the rule of law, or the role of a free press, and he has a dangerous tendency to view himself as infallible.  After discovering a gaping security flaw in his product that revealed bulk information about friends of friends, exactly like Cambridge Analytica, I warned Mark in writing about the way his sloppy code would inevitably lead him to cross paths with the FTC and cause massive privacy and security concerns—in April 2005.  His response: problems with the “Mark Zuckerberg production” were actually someone else’s responsibility and “not worth arguing about.”

Clearly, Mark can no longer argue that his decisions as Facebook’s CEO are immaterial (though he has tried).  Many have already lost their lives, whether through avoidable suicides or avoidable genocidal acts in Myanmar, due to his string of increasingly tone-deaf and spectacularly dishonest decisions.

Now, fifteen years and approximately as many false apologizes after my classmate started a grand social experiment that first captivated the media, then locked it in a profitless box, and then played a major supporting role in bringing fascism to America, the general consensus is that the best way to handle Mark and his tech brethren is through the Sherman Anti-Trust Act.  But the consensus is wrong, based on a mountain of misapprehensions.

In a nutshell, the argument in favor of anti-trust action is that in the midst of the longest economic expansion in U.S. history, it’s the Progressive Era all over again.  A recent New York Times op-ed penned by Mark’s co-founder, Chris Hughes, made essentially this point, relying heavily on input from the Roosevelt Institute.  The Open Markets Institute agrees.  In a talk at Harvard Law School, Matt Stoller argued that Facebook, Google and Amazon were “born as monopolists.”

It’s a compelling story, so long as one is willing to ignore the reality on the ground.  For one thing, software products are not railroads, which require significant physical capital and labor to establish.  Were he determined to do so, it would take Mark a few weeks to re-build Instagram and WhatsApp, and there really isn’t any way the government could stop him.  For another, I know that on this particular issue, Stoller is incorrect, because I was there when The Facebook was born on my hard drive on September 19, 2003, in Lowell House.  It hardly resembled a monopoly.  Monopolies are what happen as the result of prolonged neglect by law enforcement.  They’re not born; they’re nourished by years and years of perverse incentives.

The biggest problem with treating Facebook as a monopoly, as opposed to the byproduct of what Jesse Eisenger calls “The Chickenshit Club,” is that it wrongly affirms Mark’s infallibility and fails to see through him and his scheme, let alone the reality that he’s not even in control anymore because no one is.

Would it have helped to separate Madoff Securities LLC into one company per floor, or split up Enron by division?  Probably not, but talking about it is Facebook’s dream come true.  Because the question we should really be discussing is “How many years should Mark Zuckerberg and Sheryl Sandberg ultimately serve in prison?”

_____

1 Aaron Greenspan is short Facebook stock. Think Computer Foundation made a donation to Aurora Advisors Incorporated as part of its 2016 Naked Capitalism fundraiser.

Print Friendly, PDF & Email

75 comments

  1. GramSci

    When Alex Stamos announced that the Internet Research Agency’s ad buys were a drop in the ocean, Zuckerberg was promptly taken to the Congressional Woodshed and told to report to the Atlantic Council.  Those two billion-odd fake accounts may be a fraud perpetrated on the advertisers, but they are invaluable to US “law” enforcement and to US propaganda, where the ability to open a fake account on Facebook gives the illusion of privacy.

    With all due respect to Mr. Greenspan and his Lowell House creds, I think he fails to understand that Facebook is now an NSA asset. 

    Reply
    1. Jonny

      Now? Come on, one must see it thru this. Google Facebook and oh so many others, they only fly higher BECAUSE they are what they are, not because they offer what they offer. This is old game, AND HAS TO GO! Find another way to gather information.

      Reply
    2. Summer

      +1
      NSA and other law enforcement asset.
      Remember stories about stupid criminals on the run who took the time to update their Facebook page?

      Reply
  2. lyman alpha blob

    Good article, the core claim of which is no doubt true. I suspect most platforms count any account ever created as a ‘user’ for advertising purposes. I have had several accounts banned from another website I could mention but last I checked, while I couldn’t post from any of them, I could still access all of them and so could anyone else who wanted to poke around the archives.

    I will note the Trump derangement syndrome that makes an appearance, mainly because it dilutes the authors argument. How can Fleecebook simultaneously be a sinking ship of a platform that is filled with fake accounts that fewer and fewer real people engage with, and yet still be so influential as to help elect a ‘fascist’ president who the populace would not have voted for otherwise?

    Perhaps someone should use some fancy Silicon valley metrics to show how many voters stayed home as a result of Daily Kos (oh darn now I’ve gone and mentioned that other website) purging all those who wouldn’t toe the Democrat party line and how that helped elect Trump. Those arguments would probably be about as accurate as the ones being used against FB, but it would be fun to watch Moulitsas’ knickers get all atwist.

    Reply
  3. Unsympathetic

    If one accepts that FB user numbers are fraudulent, the Russiagate narrative falls apart.

    What if the fake ads were only “viewed” by fake accounts?

    Reply
    1. Larry

      Bingo. But it’s a great story for political elites to paper over their complete failure to maintain their control.

      Reply
    2. Michael Fiorillo

      Russiagate, the most extensive disinfomation/propaganda campaign since Iraqi WMD, has fallen/is falling apart without any need to reference fake Facebook accounts.

      The Collusion narrative/conspiracy theory was preposterous from the get-go, riven with internal inconsistencies, and the recent Federal court ruling that prevents Mueller from continuing to publicly accuse Concord management of “undermining our democracy” (that’s a hot one) discredits the second of the three bases of the narrative.

      Someday the McResistance TM and unhinged liberals possessed by magical thinking must grapple with the fact that Trump was elected in America, by Americans, and that there is no Santa Claus.

      Then again, maybe not.

      Reply
      1. Summer

        “Trump was elected in America, by Americans, through a voter system created by Americans that disenfranchises large populations in a Presidential election…”

        Fixed that for ya!

        Reply
        1. Monty

          “Now, there’s one thing you might have noticed I don’t complain about: politicians. Everybody complains about politicians. Everybody says they suck. Well, where do people think these politicians come from? They don’t fall out of the sky. They don’t pass through a membrane from another reality. They come from American parents and American families, American homes, American schools, American churches, American businesses and American universities, and they are elected by American citizens. This is the best we can do folks. This is what we have to offer. It’s what our system produces: Garbage in, garbage out. If you have selfish, ignorant citizens, you’re going to get selfish, ignorant leaders. Term limits ain’t going to do any good; you’re just going to end up with a brand new bunch of selfish, ignorant Americans. So, maybe, maybe, maybe, it’s not the politicians who suck. Maybe something else sucks around here… like, the public. Yeah, the public sucks. There’s a nice campaign slogan for somebody: ‘The Public Sucks. F*ck Hope.”

          Never gets old.

          Reply
        2. Michael Fiorillo

          Very true, but also not very relevant to my main point.

          In fact, Russiagate has been a distraction and misdirection away from issues like voter disenfranchisement, and almost every other issue of significance; no need to do the hard work of re-claiming the country (which liberals are loathe to do, anyway) when all we need is to keep Pooty-Poo from “hacking our democracy” and smooching with Trump.

          Reply
      2. Scott1

        Whenever I get to “Then again, maybe not.” I end up looking at it till I figure out a way to delete it.

        Maybe not. It is ridiculous to me that hacker wars would be dependent on 19th century belief in the Printed word, the magazine, the newspaper.

        It is worthwhile to think as a dictator would. Sure cyber hack war is cheap, but why stop at the unreliable poster for a Toulouse-Lautrec dance club when there are ways into the machines holding the numbers to just flip?

        Maybe, Maybe not?

        Power. Smart power goes for the sure to be successful
        crime over the maybe successful crime.

        Sure advertising & public relations work, but they are not
        absolutely certain to work and may well be cover for what
        is certain more than the actual reality.

        The box with the votes in it is the machine and the machine
        can be hacked.

        Reply
    3. John Wright

      But the author of this piece states “and now that those costs have caught up with him—namely, genocide, a role in putting a fascist, white supremacist in the White House”

      So while suggesting Facebook’s user count and its (implied) influence is not great, the author still promotes the “Russiagate Facebook influenced the election” narrative..

      How noteworthy was the Facebook role?

      The author is certainly able to maintain two seemingly contradictory viewpoints in his mind (and prose).

      Reply
      1. Michael

        2 questions: 1) Have you read the Mueller report? 2) Do you doubt that Russia manipulated Facebook and Twitter users at all or just that the 127m number reported by Facebook is inflated and only say, 20m US voters were duped (including Trump Jr, Eric Trump, Donald, Flynn and millions of others) into actually liked/forwarded known IRA content)?

        Reply
        1. Michael Fiorillo

          Yep, those “Buff Bernie” and “Jesus Arm Wrestling With Satan” pages, often written in broken English and most of which appeared after the election, really did the job, didn’t they?

          In case you didn’t notice, Mueller has been enjoined from making any more claims about those Facebook pages as products of Russian state actors, since the accused unexpectedly showed up in court and demanded discovery of evidence, which Saint Santa Claus Mueller was unable to provide.

          Give it up, already: Trumpismo must be defeated politically, through traditional and creative political methods, and not via wishful thinking based on an opportunistic convergence of interests among the Clinton/Obama/Donor Class wing of the Democratic Party, factions in the National Security State that don’t consider him an effective steward of empire, and a corporate media that gave him billions in free media but now wants us to think it opposes him.

          Leslie Moonves of CBS’ quote about how Trump was bad for America, but great for CBS shareholders, says far more about Trump’s victory than all the hair-on-fire reports about Russia and Putin.

          If there isn’t some kind of reckoning for this disgraceful episode, which has only inoculated Trump against reports of what he actually is doing, and is an inestimable political gift to him, the Next Trump is going to make far more sinister use of it.

          Reply
        2. John Wright

          I look at the “Facebook threw the election to Trump” story as equivalent to blaming the camel’s back breaking last piece of straw for the camel’s injury without observing that the entire prior heavy straw loading made this possible.

          The exposure of HRC’s “deplorables” comment, or her “public positions vs private positions” comment or her selection of Tim Kaine as VP or her Wall Street speeches could have all been far more significant in her loss than any liked/forwarded Russian Facebook postings.

          I have never done Facebook, so perhaps I am completely in the dark as far as its influence on potential voters.

          How does one know that actual votes were flipped via a Facebook posting?

          For example, if the Facebook forwarding content served only for confirmation bias, perhaps a very small number of voter minds were changed, as the voters were already Trump leaning.

          That is a fundamental problem of any advertising/influence campaign, getting an ad possibly viewed is one thing, knowing that it was influenial is very difficult.

          How exactly did Mueller determine, with any confidence, that voters’ minds were changed via the Facebook platform?

          If Mueller determined that these Facebook postings were truly influential in changing would be HRC voters to Trump voters, he could have a new, very profitable, career in the advertising industry.

          Reply
        3. jrs

          Question for you: Can you prove that the influence of social media was greater than the influence of mainstream media which covered Trump CONSTANTLY?

          Mainstream media gave Trump $2 billion worth of free media, more coverage than any other candidate by far.

          https://www.huffpost.com/entry/donald-trump-2-billion-free-media_n_56e83410e4b065e2e3d75935

          I find it hard to believe social media had more of an effect than constant mainstream media coverage and as far as I know noone has accused them of being influenced by Russians. Can you show otherwise on either of those points?

          Because if the negative influence of Putin whatever it may be is less than the negative influence of selling ad revenue on t.v. …well then the problem is capitalism not Russian oligarchy destroying democracy.

          Reply
        4. Yves Smith Post author

          You need to get that knee tended to.

          “Russia” with respect to Facebook was “Internet Research Agency,” a Russian troll farm that ran a teeny number of ads in terms of both volume and dollar spend. A Federal judge ordered Muller to quit trying to depict its principals as connected to the Russian government because it was prejudicial to their case. No connection has ever been established nor is it it likely to be established. The ads were stunningly amateurish, all over the map in terms of messages, and apparently 25% were never viewed, and IIRC, over half ran after the election.

          Reply
      2. False Solace

        There is no contradiction, in fact one enables the other. Facebook can influence legit users while also having billions of fake accounts. It has twelve billion accounts. A couple billion are probably legit, the rest are not legit. Some fraction of the not legit ones are used to spread propaganda. And some fraction enables genocide as happened with the Rohingya.

        Reply
        1. Michael Fiorillo

          I’m not well informed about the events in Myanmae, but did State and military really need Facebook in order to commit genocide against the Rohingya?

          And even if there are facts to prove they did, that has no bearing whatsoever on claims that childish click bait pages helped elect Trump. Those making that claim have an affirmative obligation to prove it, lest it have the same validity as me claiming Trump was elected by sunspot activity.

          Let’s assume for a moment that every claim about the Russian state involvement with 2016 election Facebook posts is true, since, after all, it’s not implausible; states do this kind of thing all the time. Granting every claim as factual (a huge stretch, but for argument’s sake), it’s the equivalent of a morbidly obese man with diabetes, heart disease and cancer insisting that his afflictions stem from background radiation in the environment, and that he has no need to change his lifestyle.

          Reply
          1. Monty

            “it’s the equivalent of a morbidly obese man with diabetes, heart disease and cancer insisting that his afflictions stem from background radiation in the environment, and that he has no need to change his lifestyle.”

            Neatly surmised, or as some in these parts might say, “YUUUUUUUUUUUUUUUUUUUUUP!!”

            Reply
    4. J7915

      60k-80k votes, viewers were convinced to vote against HRC, not vote or vote for DJT. If it is all fake and fraudulent, why has Zuk not opened his books.
      2016 was a propaganda success. The CIA, KGB, et al have pulled this shit since for ever. The riots in Mynamar were perpetrated by how many FB users?

      Reply
      1. Scylla

        He will not open his books because it would expose his fraud aimed at enriching himself and crash the stock price, maybe? Just totally spitballing here….

        Reply
  4. vlade

    FB fake accounts were an issue for a very long time. It pops up now and then, and then is ignored. Unfortunately.

    Google, TBH, has a not dissimilar problem, although it’s more obvious to the buyers. That is, it can’t tell how many clicks (don’t even mention “impressions”) are bots. And it has no incentive to put anything strong there, to the contrary, it has incentive to show some captures, but as few as possible.

    After all, advertisers pay for clicks and impressions, and you don’t want to drop those numbers that your revenue depends on, do you?

    If you business model is “user is the product”, then of course you have an incentive to fake the users..

    Reply
    1. pnongrata

      FB and Google have always said that if you can’t turn those clicks into customers, it’s your own damn fault for not targeting properly.

      Successful campaign stories serve to fuel their evil business, like all ‘good’ Ponzi Schemes. Shameful.

      Reply
    2. Summer

      Google’s problem is slightly different. The engagement of their users is deeper because a good number those creating content are seeking payment…that would be the point of contention with a number of those users.

      Reply
  5. Arizona Slim

    If I’m reading this story correctly, Facebook’s all-time signup total stands at 12 billion people. However, only 1 billion are currently active and the user base is only growing in areas where fraud is prevalent.

    One in 12 accounts are currently active. Wowsers.

    If I were in charge of media buys, I’d be avoiding Facebook like the plague. And, for some strange reason, I’m reminded of this man’s book:

    https://www.goodreads.com/book/show/13539184-social-media-is-bullshit

    Reply
    1. Arizona Slim

      If you liked that BS book title, you’ll also enjoy this blog post from the author’s website:

      https://bjmendelson.com/

      Key point from the post:

      Consider this:

      1. In a world where we know everyone has a smartphone and chooses to browse mostly within their apps (FB, IG, YT, ect.) only searching the Web for when they need something immediate …

      2. AND most of the traffic / activity on the Web, mobile and desktop, is fake … What is the purpose of a traditional website? Something that is very much a product of the ’90s Internet user experience.

      3. If the economic model for writers is terrible (it is!), and Google / Facebook dominate 59% of the online advertising market, meaning no advertising money for you on your website, why are you giving your stuff away for free? For content marketing and SEO? I don’t know. Maybe for a brand, sure, but for an individual? I don’t think so.

      Reply
    2. so-shall media

      For a long time, if a FB friend deleted their account, your total friend count would go down by 1. At some point, that changed. Now, even if all your FB friends delete their accounts, leaving no active accounts, your total friend count will remain unchanged.

      Reply
      1. Chuck T.

        I quit ten years ago and ‘deleted’ everything and unfriended all my ‘friends’ before I ‘deleted’ my account. Quotes since I know FB still has all that stuff somewhere. Funny that they got wise to shrinking friend counts. I’m sure they rationalize it as “well, just because they deleted their account doesn’t mean they aren’t your friend anymore, so we’re going to keep them in the total.”

        Reply
  6. john BOUGEAREL

    The world is a racket.

    From an investor point of view, revs are growing very nicely albeit at a slowing rate and forward earning valuations are not atrocious. 47% rev growth in 2017. 37% rev growth in 2018.
    24% rev growth forecast for 2019. 21% rev growth forecast in 2020. Those rev growth rates are over the moon compared to the SP500. Who gives a rat’s ass about fake accounts as long as the revs are growing. And Singer, poor fella, he was crying in his beer back in August because he probably lost money when the stock price went down following an announcement that rev growth rates would predictably slow. If the cry-baby didn’t sell, the market has made him pretty much whole again.

    If and when rev growth falls off a cliff instead of a natural rate of deceleration, then the fake accounts may become material. Even if revs fall off a cliff, there is little to no likelihood you will find a Madoff of Ponzi lurking around the corner.

    Tsk, tsk.

    Reply
    1. False Solace

      It sounds like revenue is only growing because advertisers aren’t aware of the fake accounts and related puffery. That will only remain true for so long. Facebook hasn’t provided any data to clarify the matter, in fact their data further confuses it. In that respect it resembles a Madoff-style scheme. And that will become terribly relevant once revenue growth slows down.

      Fortunately, elites never go after each other so Z and friends will be fine. No worries there.

      Reply
  7. John H

    This is short seller nonsense and in the the case of Aaron Greenspan one with a history of contention with Facebook. Facebook has real revenue and has since before its IPO so its not a Ponzi scheme in any traditional sense of the word. Advertisers are well aware that there is account fraud just like they know that newspaper circulation and TV audience numbers are inflated. And in fact anybody with an active Facebook account knows this because they get friend requests from bogus accounts which are created to get at their social graph. Advertisters base their spend on ROI. People with real businesses make money using Facebook advertising.

    Reply
    1. William Sircin

      “Not a Ponzi scheme in any traditional sense of the word“! Now that’s priceless! Also, do you have any numbers to support your assertions here? What kind of “real revenues”? How much money are these “real businesses” making with their Facebook ads? Seriously, I’d like to know.

      Reply
      1. John H

        Look at their audited numbers. They are a public company. Are you claiming that people aren’t paying Facebook for advertising? A ponzi scheme is rob Peter to pay Paul. None of that is happening here. Real customers are paying Facebook real cash to push ads to real existing customers some of whom click on the ads. Some (most) of those ad purchasers are savvy enough to track whether they have a positive ROI from the ads.

        Reply
        1. Acacia

          My understanding of Greenspan’s argument is that Facebook is a Ponzi scheme in terms of users, not ad revenues. It’s not that the ad revenue of Peter is being used to pay Paul, it’s rather that billions of Facebook accounts are fake and Facebook is claiming they are real people generating legit ad impressions.

          Indeed, advertisers know that there is account fraud, but they may not be aware of the extent. It’s one thing if, say, 12% of accounts are fake, but it seems like kind of another matter if 92% of accounts are fake.

          Reply
    2. Summer

      For all the finangling tv and newspapers may do with numbers, their audit process for advertisers is more transparent.

      Reply
      1. John H

        On the internet that matters far less. Yes, you pay for clicks and impressions but you judge your campaign on the actual purchases which you can track fairly directly in most cases.

        Reply
        1. Yves Smith Post author

          Oh, come on. There is no way to connect FB spend with purchases save in very narrow cases (say a coupon distributed only on FB). It’s a endemic problem with advertising, not know what ads are productive.

          And it is a fraud to say that your ads are being viewed by X number of buyers if only a fraction of that number are actually seeing the ad. The fact that the advertisers paid the $ and FB reported the $ paid does not make it not a fraud.

          And you apparently have a reading comprehension problem. The article discusses at length what FB discloses about its accounts and why it is inconsistent and inadequate.

          You are also making stuff up, which is against our written site Policies. Audited financials do not include operating metrics. Most public companies disclose some because they make analysts more confident and helps them better understand what drives a company’s economics.

          Reply
          1. Greg

            I disagree with John H on the ponzi status – i think fb revenue stinks of something – but i have to back him up on tracking ad revenue, with some caveats.

            Internet ad driven revenue in a well organised campaign is much more transparent than traditional media buys. If your ad takes them to your website, and your website has been (re)built in the last ten years, you’ll have specific journey visibility from the ad to wherever they exit, including at the end of a cart.

            So John’s completely correct that if you’ve got your shit together and control your ad buys and website, you know if it’s working.
            Of course in the real world that’s only really the case for internet businesses because everyone else has agencies and contractors and broken processes, and often internet ads are bought as part of a package with traditional all driving to the same place and mixed up with regular transaction volumes.

            But for digital businesses, yeah you know if fb is working for you. Mostly because of course all that tracking that we worry about the government using is commercial already.

            Reply
            1. Yves Smith Post author

              “If your ad takes them to a website”.

              The overwhelming majority of ads are CPM based, not clickthroughs, as you know. Advertisers should look at how many people actually click to determine the productivity of a site where their ad is running, but failure to click can just as easily be the result of poor ad design or poor targeting of an ad.

              Reply
              1. Greg

                Ah yes, sorry, we never bothered with that sort of basic ad because it’s transparently a complete waste of money, like tv.
                If you’re getting clicks, best make sure they achieve something.

                Reply
                1. Greg

                  … and I’ve never going a convincing argument for the value of brand exposure. Which probably says a bit about the sort of analytics i insist on seeing to back up ad spend.

                  Reply
              2. Uwe Ohse

                And then there are branding ads, which are done to keep the brand name in the customers minds.

                Some companies do not want to sell online, they even do not care whether the viewer clicks the ad and ends on a landing page with some information everybody already has. Whether customers reach the landing page is not important, especially since at least half of them do that because of an erronous click.

                The success of branding ads is notoriously hard to measure. Almost nobody clicks on an ad of insert-favorite-drink-name-here, but exposure to that ad works anyway (or doesn’t, if that ad is designed poorly).
                One measures success of branding by real-life sales in the following weeks, and needs to account for a lot of external factors (like heat, cold, …).

                Online measurement for branding ads are done to control the targeting, the placement and whether the ads are served at all.

                Reply
  8. The Rev Kev

    This is a fascinating article and it certainly put a smile on my dial. As an asset for use by governments around the world, Facebook may be too invaluable to just let sink. One guy reported that he was in a meeting with Facebook’s top brass including the Zuck when a head honcho of the FBI came into the meeting and sang Zuck’s praises for all the help that Facebook gave the FBI. So the question remains. Just how many “real” Facebook accounts does Facebook have? Ones that people check on daily. Now that is the killer question.

    Reply
  9. Synoia

    Part FB’s value is in its map of relationships.

    It’s advertising is probably more effective than magazine advertising, where people pass over the ads.

    Reply
  10. WJ

    Chaperoning a field trip for my daughter’s grade school class, I asked another chaperone, the seventeen year-old nanny of one of my daughter’s classmates, if she and her friends used Facebook. “Nobody uses Facebook, ” she said; “it’s for older people, everybody thinks.” The kids still use Instagram and Snapchat apparently, but Facebook is anecdotally no longer the “thing” it was ten years ago. Hopefully it will continue to go the way of cable news.

    Reply
    1. Jonathan Holland Becnel

      Little sister, 16, and all her friends use Snapchat to communicate and have Insta accounts to post/browse pics.

      Reply
      1. Greg

        I’m back at university for my sins, and unfortunately all the incredibly tiny kids are reliant on fb messenger along with snap and Insta. They don’t post on fb, but theyre still tied to it.

        Reply
  11. Susan the other`

    I don’t see how the premise of this argument against FB (one of the premises: that all of FB’s fake-account-ponzis are a more blatant fraud than Libra ever could be) can be accepted. Libra is the most blatant move I can even imagine. No doubt that’s why Larry Summers has said nothing negative about it. Libra cannot even be defined let alone regulated. You’d think that only someone closely connected to the NSA would even attempt unleashing such a dangerous possibility. The estimate that FB really only has 1 billion real accounts at best does not nullify or even ease the super dangerous chaos that could result from Libra. In fact it just exponentiates it because FB can multiply all its Libra opportunities 12 billion times. A day.

    Reply
  12. fdr-fan

    The Ponzi comparison isn’t appropriate. A Ponzi scheme offers investment returns, which you can’t really investigate for yourself. The money enters your account, and you don’t know if it’s obtained fraudulently.

    FB is offering fake eyeballs, which advertisers CAN check, so caveat emptor is valid.

    Start using FB ads for a while, then stop. If your customer count goes up while the FB ads are active, then down when they stop, FB ads are working. If the customer count doesn’t change both ways, FB ads are useless. Major advertisers have much more sophisticated ways to check, but this simple experiment would tell the story.

    Reply
    1. Yves Smith Post author

      You keep making stuff up. One more instance and you will be blacklisted. I’ve chewed you out too many times and you are not shaping up.

      There is no way for an advertiser to check whether FB is offering “fake eyeballs” via pretending long-dormant accounts are still active.

      It is a well known problem in advertising that ad spend productivity can’t be measured reliably if at all. Your assertion of a simple relationship is false.

      Reply
      1. Arizona Slim

        I am reminded of what John Wanamaker said about advertising expenditures for his department store:

        Paraphrasing Mr. W: Half of my advertising dollars are wasted. The trouble is, I don’t know which half.

        Reply
  13. dk

    So the operation that has done the most to gut the local news media market by sucking out the advertising revenue with a more automated and operationally centralized replacement channel, has not only bilked the advertisers, it has collapsed journalism itself and if it too collapses, it leaves little of substance to replace it, certainly on the local fronts.

    Advertisers will be scrambling to find new venues; their money will go somewhere. But will they have the incentive or conscience to invest in the resuscitation, or re-development, of the the investigative capabilities and legacy of localized expertise that was a functioning if imperfect component of democratic society? Will they willingly fund sites that may probe and question their own operations and methods? Why not just build their own platforms, and have the most direct control over the content, hosting what is favorable and conducive to their products?

    Reply
      1. Briny

        A division of the Amazon Prime Media Network. Why not, WaPo and Prime Video are already in place. PrimeBucks coming soon.

        Reply
  14. bruce

    I have three Facebook accounts. The two I never ever look at are the one for my cat and the one for my feminine alter ego. My own account is used for only one thing, watching “People You May Know” to see how far they’ve penetrated my graph; occasionally disturbing, occasionally hilarious. I’ve never looked at my “wall”, issued or accepted a friend request, posted anything, messaged anyone…but they have my email, and wow do I hate this company!

    May 2018, a woman I loved and was ultimately going to get to move in me died (age 70, natural causes). Twice a week on average I get emails from Facebook inviting me to read her most recent messages. You can imagine how I feel about that. SHE DED!

    Facebook has boasted on the order of 2-3 billion users, a significant percentage of the world’s population, and I don’t believe a word of it. One may assume that the early adopters were people with more tech savvy, affluence and most important, leisure time to screw around on the internet, and the proles don’t have a lot of leisure time. Moreover, the value to the advertiser of a set of eyeball impressions is directly related to the amount of disposable income those eyeballs have, and sure, India has about one and a half billion people, but a lot of them have zero disposable income and zero leisure time.

    Die Facebook die!

    Reply
  15. otishertz

    From the cited lawsuit:

    “Based on a combination of publicly available research and Plaintiffs’ own analysis, among 18-34 years-olds in Chicago, for example, Facebook asserted its Potential Reach was approximately 4 times (400%) higher than the number of real 18-34 year-olds with Facebook accounts in Chicago. Based on a combination of publicly available research and Plaintiffs’ own analysis, Facebook’s asserted Potential Reach in Kansas City was approximately 200% higher than the number of actual 18-54 year-olds with Facebook accounts in Kansas City. This inflation is apparent in other age categories as well.”

    Reply
  16. otishertz

    “These foundational representations are false. Based on publicly available research and Plaintiffs’ own analysis, Facebook overstates the Potential Reach of its advertisements. For example, based on publicly available data, Facebook’s purported Potential Reach among the key 18-34 year-
    22 old demographic in every state exceeds the actual population of 18-34 year-olds… .”

    Reply
  17. rjs

    i have two facebook accounts, one of which i didn’t even create myself (someone used my seldom used aol email address to create one) since the time i found and accessed that aol linked account, facebook has provided me an “account switcher” button to switch back and forth between the two of them..

    Reply
  18. Tom Bradford

    I’m baffled. I spend 5-6 hours a day on-line – mostly visiting sites like this in order to find out what’s going – but I know next-to-nothing about Facebook or what it is/does and have certainly never knowingly visited it. What little I do know – apparently it’s for telling complete strangers what you had for breakfast – doesn’t appeal to me.

    I’ve certainly never created a Facebook account yet it has, according to this article, 12 billion accounts. Given that the total population of the world is but 7.6 billion I do wonder where all these accounts are coming from.

    Reply
    1. Acacia

      Where do those 12 – 7.6 billion accounts come from, you ask? Probably, they are created by apps and then used as proxies for real human beings. Maybe FB is even in on this game themselves, for *cough* diagnostic purposes only, of course.

      For example, there are companies that sell fake FB likes. There are even web sites that rank the different vendors of fake likes. “Vendor X’s fake likes are 22% less fake than Vendor Y’s fake likes!” How do they work? Do they actually pay real human beans to go “like” stuff, or do they have an app that can receive orders to tell the click farm in a suburb of Shenzhen to tell a carefully curated set of the fake accounts on tap to go “like” some specific URL? Etc. etc.

      Reply
  19. KFritz

    Is it possible that there are number crunchers with Google and the NSA who could verify or put the kibosh on Mr. Greenspan’s assertions? If so, let’s hope someone steps forward after such a bold and astonishing assertion.

    Reply
  20. david schermerhorn

    My wife pointed out that she got “friend request” from a friend that had died several years ago. Uhhh?

    Reply
  21. Reality Bites

    I agree with the general idea that Facebook’s numbers are inflated but to drill down on this point further:

    Some accounts are intentionally created duplicates. For example, people that play online games (either computer based or app based) often create an additional Facebook account just for game purposes. Linking this account gives them extra incentives in game, particularly if they refer other accounts or Like certain posts, etc. This is also true for some apps that use Facebook for sign-in verification purposes(such as Tinder). I also know a number of people that have accounts that are public, as in an employer or other can see them, and a more private account just for close groups of family and friends.

    I noticed that some of the comments were skeptical of the point made about Facebook’s role in the Rohingya crisis and others. I think this role is understated actually. Looking at how many people actually viewed a Facebook post is not the best metric because people will often recirculate videos or posts originally seen on Facebook through other means, primarily WhatsApp or even through FB Messenger. I saw these first hand when I got multiple videos and posts on WhatsApp when the Indian soldiers were killed in Kashmir earlier this year before the Indian elections. I also received the two Christchurch videos of the shooting and the aftermath well after they were taken down by FB.

    Once content like this enters the ecosystem, one enabled and promoted by FB, they take on a life of their own. Facebook ignored content concerns and it has caused significant problems even in more developed countries. It has been devastating in developing countries. For example, Burma has only had widespread mobile phone technology since 2013. There is little to no institutional ability to control disinformation. The population has little ability to discern disinformation and the information sent is often deliberately made to inflame inherent biases in the population. FB knew about these issues for years in many countries yet aggressively pushed Free Basics and other programs to hook users.

    I disagree with the article when it says that antitrust actions would be fruitless. Amassing the tools, businesses and data that FB used to power the current system would be much more difficult in the current environment. This is particularly true on the data privacy point. FB and Google can easily get around GDPR because they are so massive. Smaller companies are not so lucky. If the US had a real data privacy protection regime, it would provide additional limits. Moreover, more robust antitrust actions would mean there would be more resistance to even allowing purchases such as WhatsApp or Instagram in the first instance. It would end up being a mix of antitrust plus additional regulation of the tech sector.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *