According to details revealed from the documents in the court on Wednesday, the senior executives of Facebook, Inc. (NASDAQ:FB) knew of inflated ad metrics for several years. They allegedly brushed off its employee, who proposed to make corrections, to improve its ad revenues.
The lawsuit filed in 2018 by a small business owner reveals that the product manager responsible for potential reach said the company could not make huge revenues from ads. According to him, the ad revenues are based on wrong data.
Did not remove duplicate accounts
The potential reach metric of Facebook allows the advertisers to see an estimate of how many people its ads could reach when setting the budgets and bidding. According to the lawsuit, the Potential Reach metric misleads the advertisers because it is just a measure of the people instead of a measurement of accounts. Also, Facebook deliberately retained fake accounts in the potential reach metric. According to the Facebook analysis in 2018, the removal of duplicate accounts could cause a drop of 10% in its ad revenues.
Though the manager working on Potential Reach suggested making corrections, the leadership at Facebook rejected the proposal because it would cause a drop in the revenues.
Reports excellent results
Facebook reported ad revenues of $84.2 billion in 2020. It becomes one of the biggest digital ad companies to report better results across the world and in the US. A spokesperson at Facebook said the allegations leveled in the lawsuit are baseless and cherry-picked to suit their narrative.
Charges only for clicks on ads
Facebook charges the companies based on how many people clicked or seen the ad and not on potential metrics, which is just an estimate for the advertisers.
After the submission of another lawsuit, Facebook in March 2019 said it is modifying the potential metrics based on how many people saw the ad on its product in the past month. The Potential Metrics function on Facebook’s webpage as of Thursday describes an estimate of how many people could see an ad based on the ad placement option and target.
According to the claims of the lawsuit, Facebook wrongly stated potential reach metrics of 230 million adults in August 2018 against its actual users of 170 million. However, Facebook says the estimates could vary considering the factors like how many accounts are managed by a user.