
Facebook's fake account problem - thinkcomp
http://www.aarongreenspan.com/writing/20190723/mark-zuckerbergs-ponzi-scheme/
======
jasode
_> Advertisers pay Facebook on the assumption that the people viewing and
clicking their ads are real. But that’s often not the case._

Actually, advertisers already _know_ there are lots of fake
(Facebook/Twitter/Snapchat) accounts. Likewise, advertisers also know that
newspaper & magazine circulation numbers are inflated (even though the
circulation #s are "audited"). Ad buyers also know that tv audience sizes are
inflated as well.

What matters in the end is if there's a positive ROI on the ad spending. The
advertisers can measure the uptick on sales and if the ads worked, they renew
their ad spend on Facebook. The majority of Facebook revenues come from
_repeat business of advertisers_ who already know about fake users. In
contrast, if the majority of Facebook revenue were to come from _1st time ad
buyers_ that were easily fooled by fake accounts, that's when the false user
count would drastically affect revenue.

I'm the last person to defend Facebook but just wanted to highlight how
advertisers think. For the Facebook ponzi scheme to fall apart, the ads have
to _stop working_. This has happened before. In the 1990s, advertisers were
buying Yahoo banner ads. But after the initial novelty of naive web surfers
clicking on them, advertisers quickly realized banner ads were worthless. As a
result, Yahoo revenues plunged.

~~~
ransom1538
"What matters in the end is if there's a positive ROI on the ad spending."

This would make logical sense. BUT! it turns to not be the case. Larger
accounts: Pepsi, Johnson&Johnson, Tmobile, etc tend to just take a massive
budget and blow it on ads. They don't necessarily care about the ROI or click
tracking. They just want to shove banners in front of people's faces before
the quarter ends. What is nuts -- is that these large accounts (we used to
call it dumb money) are almost all of the ad revenue. Accounts that care about
click ROI tend to be low budget -- that is why facebook/google will push these
people into self service ad portals.

~~~
Nasrudith
That highlights something I noticed about advertising - it is ironically meta
in that what is needed is to convince the buyer that it is the source of their
success.

Many have "totemic" advertising where they think slapping their name
everywhere will be what gives them success when they are already well known
and widespread enough that people wouldn't forget about them if they stopped
advertising tomorrow. Brand awareness is a thing but it seems overhyped -
especially when it forgets the downsides of obnoxious advertising.

If as the old joke the moon was painted a cocacola logo that would give brand
awareness in perpetuity but it would piss off a lot of people rightfully.

~~~
wolco
Pissed off people are still more likely to buy that brand because to do
otherwise would require a thought override. These ads speak to the
subconscious your anger is more conscious and will ebb and flow.

------
save_ferris
This was an interesting piece. The author pretty clearly states upfront that
he's been criticizing MZ for years, which I found to be strangely refreshing
as opposed to trying to claim a neutral position.

As far as the account fraud is concerned, I've wondered about this throughout
the tech industry for pretty much my whole career. Most companies I've worked
for have done all kinds of things to pad usage and retention stats in order to
appease investors, ranging from ethically innocuous to "holy shit I need to
start looking for a new gig". Online advertising in particular has been the
worst at this in my professional experience.

What's being communicated to the advertiser isn't the whole truth: it's a
selectively, surgically crafted subset of the truth. The first time I saw "The
Big Short", I couldn't help but think about how similar the ad company I
worked for behaved like the credit rating agencies. We knew that if our
reporting showed that we were ineffective, we'd lose customers, so we did all
kinds of things to make the reporting look good.

The accusation that one of the largest companies in the world is doing pretty
much the same thing doesn't surprise me at all.

~~~
puranjay
Is there any independent audit of any advertising platform's data at all? Like
Facebook tells me that 10,000 people saw my ads and I have no real way of
verifying that. And I'm supposed to believe that Facebook is being honest even
though Facebook has all the incentive to falsify numbers

~~~
georgeecollins
Game companies that buy ads for mobile installs-- a huge advertising market--
pay per install. Of course fraudulent companies create fake installs from fake
accounts. But when you get an app installed a thousand times it is possible to
judge the quality of those installs. Where they are, if they are real people,
etc. It is clear that the results vary wildly and from my subjective
perspective ad fraud is at least as bad as it has ever been.

~~~
blazespin
Yeah, I always find it bizarre when people make these naive claims. Of course
number of impressions are a proxy for reality, but when the rubber hits the
road advertisers know what value they are getting. They are leveraging the
microtargeting and the cookie tracking an God knows what else zuck has cooked
up. Facebook, Google etc are fundamentally profitable places to advertise
-when done intelligently. Smart, repeat advertisers pay Facebook a lot of
money for this privilege.

~~~
AlexandrB
Arguments like this always strike me the same way as the arguments about real-
estate around 2007: “Smart bankers would never invest billions in bad loans”.

Maybe advertisers know what they’re getting. Or _maybe_ they think they know
but are actually willfully ignorant of something important because it goes
against “common knowledge”.

Without some kind of third party auditing it’s impossible to tell, and I
haven’t seen anything like that from Facebook.

~~~
bluGill
The problem is you cannot audit as much as you would like. The important part
is a real human sees the ad. (human with the desirable characteristic is a
secondary factor). However you cannot measure the effects of an ad easily
because there are too many confounding factors: people who buy because of a
previous ad, people who would buy anyway, people who will buy in a few years.

We do know the companies that have cut advertising too much have lost market
share. However when you have a lot of ads it is hard to figure out which ad
made the difference.

------
ssharp
I don't see the evidence here as being compelling at all.

Even if you could prove that Facebook is filling the gaps between new users
and churned users by creating fake accounts, you also have to draw a line
between those fake accounts and the company's bottom line.

Fake accounts don't buy products, so if advertisers are making decisions off
of CAC, numbers potentially inflated by fake accounts (reach, clicks,
engagement, etc.) are secondary.

Facebook's ad power comes from their egregious data collection and lack of
privacy concerns. The more they know about you, the more relevant your ads
will be and the more likely someone seeing your ad will be to buy. And if
advertisers can draw a line that says "if I spend $50 on Facebook ads, I'll
increase my bottom-line line $100", they'll spend money until it's no longer
profitable to do so.

That said, it's not like all Facebook advertisers are acting rationally in
that manner. I don't know what % of Facebook revenue to coming from
unsophisticated advertisers, so it's possible that they could be making a lot
of money from people focusing on fuzzy metrics like reach.

~~~
_Understated_
> The more they know about you, the more relevant your ads will be and the
> more likely someone seeing your ad will be to buy

How much ACTUAL evidence is there for this?

Take Amazon for instance... they know everything I have bought from them ever
and employ some mega-smart people but the number of times I buy something and
they then recommend either absolute shite or the same damn thing is not an
insignificant number.

Another thing is if I am an advertiser and FB says "your ad was seen by 20
million people", how can I dispute this? It's a closed system.

I am sorry... but from my comfy armchair position I'm calling shenanigans on
mass-data collection in advertising being able to move the profitability
needle in a measurable way.

Edit: Added a bit more stuff

~~~
NathanKP
I think you are missing the point here and thinking too much about pay per
impression. Professional ad buyers don't measure their ad effectiveness in
"people reached". That is for chumps who want to be ripped off, and large
companies that have too much to burn on their marketing departments.

The people who use ads effectively are buying pay per click and measuring the
real conversions to measure effectiveness. Bots don't buy the products after
they click through, but the real clicks often do. (For some categories you can
get as high as 10% conversion rate to a real sale from real clicks that you
buy because ad targeting on platforms like Facebook and Amazon is really,
really good. If your ad is good and your product is good then the ad targeting
will get your ad in front of the right people a lot of the time.)

If you are smart you don't pay for impressions, you pay for clicks and
conversions, and you measure how many of those clicks convert into sales to
make sure you are coming out net positive. Sure there are always going to be
some fake clicks but there are still enough real clicks that convert to make
it worth it. A bit of click fraud is just the cost of doing business.

Lets say I'm selling a product that has a 20% profit margin. I might be
willing to pay up to 10% of my profit margin on ads if the increased number of
real conversions that result will more than double my sales, allowing me to
make more money overall than I would have otherwise.

There are definitely a lot of people out there who are foolishly wasting money
on buying impressions, but there are also tons of people making ludicrous
amounts of money from well targeted ads that convert into increased sales of
their product

~~~
tjpaudio
You are over-simplifying. Almost all of the metrics Facebook will feed you
when you setup an account are on a view-through attribution basis. Yes, there
will be some clicks, but if you attribute revenue from Facebook by clicks
only, it will look terrible. This is an old problem for anyone that has spent
time with display ad platforms. So, you install a facebook pixel on your
checkout, and if the person making a purchase saw your ad on Facebook,
Facebook's reporting console will take credit for that. Thats view-through
attribution and it highly overstates the credit Facebook should receive for
making the sale, but there's not much you can do to measure it otherwise. So
what do you do? The answer is, you setup a holdout test. Facebook has a black-
box solution for helping with this, but it is a huge conflict of interest to
let Facebook handle your test. The thing to do then is set up the test on your
own platform. That is a massive undertaking, and any business that doesn't
have a significantly sized engineering and analytic team doesn't stand a
chance.

So yea, people look at things like reach, and view through conversions, and it
would be very hard not too or they might not have the means to do something
more sophisticated. Fake accounts undeniably puff of numbers for these people,
and they should be taken to court for not giving a shit about that fact.

~~~
disgruntledphd2
Facebook are 100% not going to lie to you through their experimentation
platform. The whole point of it is to help people accurately measure the
results of their ads.

In general, it will be extremely difficult to run accurate tests on FB (or
indeed Google) ads without using some of their infrastructure, as these
platforms can balance users appropriately in terms of likely response to your
ads (for instance, ensuring that both ads are shown to people with
approximately the same click probability).

Without this, you run the risk of making bad decisions because one ad got
served to users who were far more likely to convert.

Of course you should definitely run your own tests, but I wouldn't completely
discount the platform's tools as they do have advantages which are impossible
for you to replicate (i.e. balancing users in terms of response rates in each
condition).

~~~
tjpaudio
Yea, but what are they using to analyze your results? You literally have no
idea how robust (or not) their statistical methods are. It's been my
experience that 3rd party solutions are notoriously shoddy in this department.
They have no incentive to be robust.

~~~
disgruntledphd2
AFAIK (it's been over a year), they use intent to treat approach, and only
remove users from the experiment after they have already been matched to an
ad. This allows them to ensure that the users are matched in terms of expected
conversion rate, which allows for valid results.

I believe that there were rumours of using bayesian analysis in the future,
but I believe it's a two-sided p-value based on the differences in your chosen
outcome.

Reasonably simple, and mostly effective.

------
harryh
It's important to understand that Greenspan (who, incidentally, comments on
hacker news a fair bit as
[https://news.ycombinator.com/user?id=thinkcomp](https://news.ycombinator.com/user?id=thinkcomp)
and submitted this link) is not an unbiased observer here. He's had an ongoing
feud with Zuck/FB for years and years and years.

From reading his writings on this, and other topics, it's clear that he is
extremely bitter about virtually all things related to Facebook.

See this from over a decade ago: [https://venturebeat.com/2007/09/02/who-
founded-facebook-aaro...](https://venturebeat.com/2007/09/02/who-founded-
facebook-aaron-greenspan/)

He also undertook a multi-year quixotic series of lawsuits against California
and other entities over what he felt were unfair regulations on money services
businesses.

[https://www.upcounsel.com/blog/aaron-greenspan-versus-
silico...](https://www.upcounsel.com/blog/aaron-greenspan-versus-silicon-
valley)

------
mrfredward
Lying to advertisers would not make Facebook a ponzi scheme. A ponzi scheme is
when early investors get paid with "profits" that are actually later
investors' money.

No one is doubting that Facebook is making genuine revenue, although they may
be misleading people to earn that revenue.

~~~
weego
_early investors get paid with "profits" that are actually later investors'
money_

But seriously, that's actually what happens in the real world in % of
"successful" startups. I think context is important in pointing to something
as a ponzi scheme

------
DisruptiveDave
About a year ago we had to pretty much shut down FB advertising as we simply
could not come close to rectifying the click numbers they were reporting to
us. That trust broke down much further when you considered conversions and
more human-like activity down our funnels.

That said, for another business, FB is absolutely killing it for us.

The difference is in target market size and niche.

~~~
thinkloop
> The difference is in target market size and niche.

Are the target market size and niche smaller or bigger for the one that works?

~~~
DisruptiveDave
Smaller. And easier to identify.

------
rjkennedy98
Really enjoyed the article, but have to point out the obvious: Fraud =/= Ponzi
scheme. Ponzi schemes are a payout model where money from later investors is
used to pay off earlier investors.

~~~
blacksqr
Yes, I've noticed that "Ponzi scheme" seems to have entered common parlance as
meaning any kind of fraud.

------
nindalf
There are so many ways in which I'd like to contradict this article, but I'll
stick to just one.

> While they reveal a problem escalating at an alarming rate and are
> constantly being revised upward .. in Q2 2017

In Q4 2017 the method for measuring the prevalence of fake accounts was
changed to something more accurate. The number of fake accounts wasn't
"escalating at an alarming rate", it was comparable to the number in the
previous quarter.

Source: I worked on that change.

~~~
malloreon
does facebook refund advertisers all the money spent advertising to fake
accounts?

------
paulgb
While this raises some good points, it's worth mentioning the history between
Aaron Greenspan and Facebook:

[https://www.nytimes.com/2007/09/01/technology/01facebook.htm...](https://www.nytimes.com/2007/09/01/technology/01facebook.html)

~~~
jessaustin
_“I actually did think about integrating it into houseSYSTEM before you even
suggested it, but I decided that it’s probably best to keep them separated at
least for now.”_

Oooh, there's a blast from the past. Why do so many Harvard undergrads talk
like this? (I was as guilty as anyone.)

~~~
icebraining
I'm curious, what's particular about that quote? Nothing jumps to me, but I'm
a non-native speaker.

~~~
jessaustin
First, the superfluous "actually". In the late 1990s, every Yard conversation
was peppered with "actually". I was on the phone with an HR person for my
first job out of school, I dropped an "actually" on her, and she (rightfully)
read me the riot act. (So, _actually_ , the idiom could have changed by now...
it apparently hadn't changed much at the time Zuck attended.)

Second, the implicit comparison between the great stupendous thing that "I"
did with the minimal barely-worth-mentioning thing that "you" did. As if
"thinking" and "deciding" were somehow so much more important than
"suggesting". We can be certain that if the conversation roles were reversed
then the implied relative importance of the different actions would also have
been reversed. This was just a particular flavor of a more general rhetorical
activity we called "flexing", back then. Lots of intimidated kids, attempting
to intimidate in turn.

~~~
icebraining
Thanks!

------
neilv
Similar post from a few hours earlier, with 43 comments currently:
[https://news.ycombinator.com/item?id=20505885](https://news.ycombinator.com/item?id=20505885)

~~~
seltzered_
Also, back in 2010 Joseph Perla wrote a similarly titled article, but less
targeted around fake accounts and more around the supply of advertisers trying
ads when fb was growing (was a couple years before its IPO):
[http://www.jperla.com/blog/post/facebook-is-a-ponzi-
scheme](http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme)
(discussions:
[https://news.ycombinator.com/item?id=1293119](https://news.ycombinator.com/item?id=1293119),
[https://news.ycombinator.com/item?id=2116062](https://news.ycombinator.com/item?id=2116062)
)

[https://hn.algolia.com/?query=facebook%20ponzi&sort=byPopula...](https://hn.algolia.com/?query=facebook%20ponzi&sort=byPopularity&prefix&page=0&dateRange=all&type=story)

~~~
thinkcomp
I'm the author (Aaron Greenspan). Funnily enough, Joseph Perla used to be my
roommate in Palo Alto. But I had nothing to do with him writing that piece,
and I think he later ended up working for Facebook. So maybe his convictions
weren't quite so strong.

~~~
ljlolel
It's true I wrote that independently. Hi Aaron!

~~~
thinkcomp
Hey!

------
alanh
I'm no FB apologist, but I take issue with this:

> _fake account problem … Google Trends shows worldwide "Facebook" queries
> down 80% from their November 2012 peak._

Except that much of this downturn in people googling "Facebook" is explainable
by the shift to mobile. Surely no one needs to Google "Facebook" to open the
Facebook app on their phone’s home screen. (For that matter, one doesn't even
need the app icon when one is receiving push notifications from FB. No legit
notifs? No problem, FB will synthesize fake ones.)

------
paulpauper
Misleading title, weak arguments, no evidence. Just click bait . Facebook saw
huge growth since 2012 by acquiring Instagram and monetizing mobile, and also
from increased advertising. Facebook does not need more accounts to grow, but
rather by making more money from existing users.Terrible article.

------
anm89
As much as I dislike Facebook these days as far as I can tell this does not
even have a surface similarity to a ponzi scheme.

------
_bxg1
At the risk of sounding like a devil's advocate (that isn't my intention), if
there really were this much fraud, wouldn't it shake out in the economics?
i.e. if you aren't getting your money's worth from the Facebook ads you're
buying, wouldn't you notice?

~~~
thinkcomp
If Facebook tells you that you got 1000 impressions, 100 clicks and 50 likes,
how are you going to prove them wrong?

~~~
jpollock
If the business' value of success is driven by impressions clicks and likes,
they aren't doing it right.

It would be like a development team measuring success by lines of code written
- it bears no relationship with the underlying success of the business.

The identification of success/failure should be attributable to revenue or
profit. They can have an internal conversion factor from clicks->$$, but it
should be there.

~~~
everythingswan
It's actually very hard and expensive to do end-to-end reporting, so it's not
as simple as you either prove profitability or not. Think of how many SMB's
there are out there that have to choose between hiring a new service provider
to provide better coverage or spending money on an obscure-to-them tool like a
CRM. I feel for them.

In addition, time is always an issue and is the ultimate variable. What worked
two months ago didn't work last month, what do you do? Every company runs into
this and there are factors that make it crazy complicated: payback period,
LTV, AOV, Days to Close.

Ad platforms like Google Ads and Facebook Ads talk more about "reaching your
target customer" with fluffy metrics since that's what they can easily measure
and, IMO, it obscures the real end-to-end results you mention. When success is
obscured, it allows them to absolve themselves of educating their customers.

The ad platforms build case studies of success and then simplify it down to
impressions and reach so that companies feel like they have to do it. It's a
profit machine.

------
NoblePublius
I was getting a half dozen obviously fake friend requests on IG every day
until I set my account to private. These were invariably users like
“TatianaXXX6969” or “SexySvetlana1727288”. Seems like the easiest kind of fake
account to block (so much for AI and ML). I deleted my FB two years ago and I
think IG is next.

~~~
namanyayg
The easiest fake accounts to block have already been blocked, these ones
would've been created with more nuance.

~~~
ceejayoz
I get them all the time, and there's not much nuance to them.

------
Sindrome
Interesting to discover the author is a classmate of Zuckerbro and claims to
have invented Facebook. Which seems to have led to a career of writing
articles like these.

~~~
harryh
I'm fairly certain that his "career" is mostly based on living off the money
he got from this:

[https://www.adweek.com/digital/facebook-announces-
settlement...](https://www.adweek.com/digital/facebook-announces-settlement-
of-legal-dispute-with-another-former-zuckerberg-classmate/)

------
phantom_oracle
Excluding the personal attacks, which dilute what would have been a good
alternative look at Facebook, I suggest everyone interested in this topic to
look at the other parts that make up the click-fraud industry:

\- Clickfarms in China that have shady people using some automation and
thousands of smartphones to perform fake clicks for the Chinese ad market

\- Pied Piper style farms with people in poor countries sitting all day
creating accounts (it was exaggerated in the series)

\- The ad giants constant "battle" with click-fraud

\- Shady tactics used by smaller app/websites to get people to accidentally
click on ads

I wouldn't personally denounce all online advertising though. It has its place
the same way print media advertising does. It's market-value is questionable
though (which is derived from questionable "effectiveness" sales pitches we're
told about online advertising)

------
aaronarduino
> Aaron Greenspan is short Facebook stock.

The author seems to be talking up his portfolio. Although there may be truth
to this article, it seems the author is attempting to move the stock price
with negitive press.

~~~
icebraining
He's just putting his money where his mouth is.

------
throwaway713
He keeps referencing total number of user accounts. This is a bad number to
track, precisely because of fraud, duplicate, and unused accounts. A better
number is something like monthly or daily active users. Then you can randomly
sample a subset of these users and manually determine the number of fake
accounts to give you a confidence interval on the total number of real daily
active users, which for investor/shareholder purposes, is much better to use
than total accounts anyway.

~~~
thinkcomp
I go into more detail in the report I wrote in January, which also points out
that the perfectly constant DAU/MAU relationship Facebook reports cannot
possibly be true as growth continues to slow/reverse. See
[https://www.plainsite.org/realitycheck/facebook.html](https://www.plainsite.org/realitycheck/facebook.html).

------
cs702
Time will tell whether the author, Aaron Greenspan, who knew and interacted
with Zuckerberg at Harvard, is right or wrong. Given the lack of good,
transparent data, it's hard for me to judge the prevalence of ad fraud. I
suspect it's hard for many ad buyers too.

In the meantime, the OP and comments here remind me of the reaction of a media
executive, Mel Karmazin, upon realizing, back in 2003, that Google could
measure the effectiveness of advertising:

> Karmazin and the networks continued to charge steep rates because, Karmazin
> says, "advertisers don't know what works and what doesn't. That's a great
> model." But it's a model, the Google executives told him, that is horribly
> inefficient. Karmazin, before departing, trained his eyes on his Google
> hosts and blurted, only half in jest, _" You're fucking with the magic!"_[a]

Perhaps new media companies like Facebook have come to the realization that
they too should not be "fucking with the magic," to use Karmazin's colorful
language.

\--

[a]
[https://www.npr.org/templates/story/story.php?storyId=120389...](https://www.npr.org/templates/story/story.php?storyId=120389927)

------
blunte
While I do believe that Facebook is indeed lying (about virtually any question
you mask it, including user numbers), I think it is meaningful to ask:

"Are advertisers getting enough performance out of Facebook ads to justify the
expense?"

The answer could be Yes. It's also possible that many of the companies aren't
managing their expenses well, and that they don't know (but still have enough
cash, whether from stock market "play money" or VC (SV play money)).

There's no effective answer to the implied question, "How can we stop Facebook
from being evil?" Even if the poisonous head of the snake is cut off, there is
enough financial interest for remaining executives (and board) to continue
along the same general path.

My answer is this: smart startups identify the key value features of Facebook
and implement them independently. This is a long play, but it could work.

One example is how Facebook is used for communication and coordination of
groups that share common interests. In this example, it's really just a little
bit of communication features missing from meetup.com to replace this (and be
better than what Facebook offers).

~~~
PaulHoule
I'm not sure that advertising markets are efficient.

Many people who advertise get a certain gratification in hearing their name
(or business name) on the radio. More than one salesperson for newspaper
advertising I have talked to tells me that their best line for retaining
customers is that "if your newspaper ads disappear people will assume you went
out of business." Political campaigns will spend hundreds of millions in
election years, enough to drive up the cost of TV advertising for car
dealerships, causing a drop in car sales.

Often the audiences for ads are not consumers, but shareholders, politicians,
employees, business partners, etc. Why else did IBM and GE run so many "lights
on and nobody home" ads before shareholders finally made them stop? Why else
do I see so many ads for cable providers that don't do business anywhere near
my area? Does this play a role in why mall stores are dying (e.g. they
believed their own illusions and didn't realize they were out of touch with
consumers?)

When Warren Buffet dies those GEICO ads will be the first thing to go, but
they help keep the news media sweet and uncritical of a once superstar
investment firm that now burns shareholder dollars while contributing to
everything wrong with our economy.

------
ChicagoBoy11
Argument could potentially be interesting save for the fact that the pudding
really is in advertiser repeat business. The metrics (of click per ads, fake
accounts, what have you), are utterly irrelevant. If advertisers keep coming
back for me, Facebook has a viable business. And, until now, that seems to be
the case. Maybe there's just tremendous lag in the feedback loop for business
to see that there's no value in FB advertising and they'll experience a
reckoning down the line, but it's been around FOR A WHILE, and ad revenue is
strengthening, not declining.

Again, it's important to disassociate that and the claims that it is a Ponzi
scheme and unsustainable business. Both of these things can (and I think
probably are) true: Facebook can have a much bigger privacy/fake account
problem than it lets on AND also have very real, sustainable revenue from
advertising. These things aren't mutually exclusive.

------
Mugwort
I know people who spend large budgets on Facebook and Google ads. What I hear
almost universally is that they aren't effective, yet everyone feels compelled
to pay for FB ads and Google ads because they see everyone else doing it. The
customers I have spoken too feel that it simply isn't working but they're
afraid to stop buying the ads for fear of slipping into online oblivion.
Numerous people have shared the same experience with me and nobody is happy.
Now there is the chance that I just happen to know only statistical outliers,
the people who pay a lot of money and feel they aren't getting anything in
return but feel compelled to continue. Maybe I just happen to know a dozen or
so very unlucky resentful people. I don't have solid "evidence". It's all
anecdotal. That said, this experience I've just described is most likely
common and hardly unique.

------
na85
FTA:

>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.

Look I hate Facebook as much as the next guy but this is clearly specious
logic. The existence of fraudulent accounts does not preclude growth in new
accounts.

------
intopieces
My naive question here re: fake accounts + advertisers is why should I care?
If these big corporations want to blow their money shouting about gay scuba
diving into the ether, what's the harm?

------
lxe
For those out of the loop and feel like this essay feels a bit “bitter,” Aaron
Greenspan, the article’s author claims that he invented the idea behing
Facebook back in 2003.

------
sharadov
Saying it's a Ponzi scheme is a stretch, any business knows that FB provides
the most targeted ads because of all the user data they have access to.

~~~
MegaButts
I hear this all the time, but every time I ask for the data (I have actually
asked people whose job is to do marketing for businesses) I'm told "just trust
me."

I am not saying they are lying, it would be truly surprising to believe such
an elaborate house of cards could stand for so long. But I am asking for
evidence.

~~~
mehrdadn
What's your explanation for why they would make such a claim if it weren't
true?

~~~
MegaButts
People lie to keep their jobs all the time. They might also just not know, but
because it's standard practice to use Facebook for advertising they just do it
and say it's a necessity.

What reason do they have to obfuscate the data unless the data shows something
they don't want you to see?

~~~
mehrdadn
> What reason do they have to obfuscate the data unless the data shows
> something they don't want you to see?

I mean, it seems like an internal corporate metric. I would expect to be
refused that simply on the basis of it not being my business?

~~~
MegaButts
I've asked people at companies I work for. I've asked people at companies I've
invested in. So in those cases, I already signed all the legal documents and
NDAs.

I've also asked people who did it for companies after they shut down. The only
thing that's obvious is nobody wants to share the data. I suspect it's because
the data is not as positive as we're supposed to believe.

~~~
mehrdadn
But even just working for a company doesn't mean you're entitled to see
business metrics?

~~~
MegaButts
I am not saying I'm entitled to it (although I think it should be available
for an investor upon request), I'm saying the widespread refusal to share the
evidence is a yellow flag that something is wrong.

~~~
mehrdadn
I mean, it's possible, but I'm trying to say that I would expect _every_ such
request to be refused to a regular employee regardless of whether something is
wrong or not.

~~~
MegaButts
That doesn't explain the scenario where the company is shut down or I'm an
investor.

My question to you is: why would you ever trust a claim without evidence
(especially when the people making that claim stand to personally profit from
it)?

~~~
mehrdadn
The investor case -- I mean, it depends on how much of an investor you were,
and what the relevant rules are. But if anybody could become an investor in
the company, then it's obviously not a real barrier... giving it to every
investor would be like giving it to everyone, which they obviously wouldn't
want to do.

The shut-down case: well, maybe you feel they don't have a reason not to tell
you internal info for a dead company, but the general hesitation would still
be there, and I don't see what they would gain from it either. Hardly seems
like evidence for hiding information.

> My question to you is: why would you ever trust a claim without evidence
> (especially when the people making that claim stand to personally profit
> from it)?

"Ever"? I mean, it's a case-by-case thing. I might do it if the evidence isn't
available to me, and the opposite might imply believing there's a large-scale
conspiracy to lie. Or I might not. The lack of someone telling an outsider
internal information is not really strong evidence either way.

~~~
MegaButts
I think everything you're saying is reasonable, but I think we just have to
agree to disagree since there is no evidence either way.

------
Nasrudith
That is some massive reification for fake accounts - just because they are
named the same doesn't mean they are similiar.

There is a massive difference between "letting people create accounts for
their pets, spammers put up fake accounts" and "fake financial accounts out of
whole cloth to create false profits".

------
caiocaiocaio
This is the first time, in my life, that I've seen an article criticizing
Facebook's business practices without having a 'like on Facebook' icon.

Fortunately there is a Twitter icon, so you can rest safe knowing this
outraged person is still giving free publicity to a social media company.

~~~
icebraining
It's a shared blog, so the presence of particular icons doesn't indicate the
author's feelings towards any in particular.

------
galkk
Where are the arguments? He is bad, I'm saying so, listen to people with
experience like me.

------
dang
Whatever one thinks of the article or its case, this is an interesting thread.
I've turned off the flags on it and, because some people were presumably
flagging because of the baity title, replaced that with a representative
phrase from the article.

------
Mvandenbergh
First: advertisers know about fake accounts.

Second: it's not like investors are somehow unaware that FB cannot grow
forever. In 2013 the PE ratio was more than 120, and it is now 30. That is
investors adjusting their expectations about future growth.

------
bsaul
the same kind of accusation was poisonning google ads for a long time but it
was called click fraud. numerous customers were suing google over billing them
for fake clicks. Ultimately, google proved to be better than other sources of
online advertising regarding fraud detection, and so people continued to buy
ads.

The problem is the same for facebook. Major advertiser track clicks up to
purchases over months , sometimes years. So they are perfectly aware of which
users are bogus, which impression are actually never seen, etc. Ultimately the
only thing that counts is whether the investment is worth it.

~~~
thinkcomp
This is about more than just click fraud. False claims of user growth have
propelled Facebook's stock upward. That's securities fraud.

~~~
bsaul
Do you think the market actually looks for users growth on facebook.com that
much, now that it has passed the billion mark, has proved to be profitable
with ads, and is making a huge chunk of its latest growth using other sites
and apps (mainly instagram and whatsapp) ?

I wouldn’t say fb is totally pure, but hyping number is i think the general
rule with companies whether they are public or private. That’s why we have
analysts, notation agencies, and why stock exchange requires publishing hard
facts, which analysts can cross and match with high scrutiny.

------
olivermarks
I always log in and out of FB on a computer in one browser type and don't have
it on any phones. One thing that always strikes me as odd:

Click your picture or add an account, and Add account and in big type: Create
a new account. It's free and always will be (un etc fields, birthdate) The
whole front page is set up to encourage multiple accounts and presumably easy
to automate the creation of thousands of fake accounts, which as we know is
very prevalent. Great hard hitting article Aaron.

~~~
kevin_thibedeau
Many stock camera apps access Facebook on startup. Even if you aren't logged
in I wouldn't doubt that FB can gather enough data to correlate your account
to the phone.

~~~
olivermarks
even when I never access FB from my phone via app or browser? I do have
instagram on my phone, often wondered whether that has a back door to FB

------
Zhenya
It's interesting that at footer of the page in hebrew it says:

אריכות ימים חברתית דרך האמת וחדשנות

"Social longevity through truth and innovation"

------
rsweeney21
I advertise on Facebook and I have no idea what the Facebook user growth
numbers are - and I don't care. We advertise on Facebook because it works. We
pay money to Facebook and acquire new users for our product in return.

Facebook actually under-reports the ROI for us (we acquire 2x more customers
through Facebook ads than Facebook says we do), because ad blockers block the
Facebook tracking pixel.

------
galkk
This is much cleaner than Greenspan’s article

------
jeffrufino
How do you fix this? do you KYC everyone?

------
SmellyGeekBoy
Hard to take seriously when the author doesn't know what a "ponzi scheme"
actually is.

------
rotrux
This is no longer news.

------
6cd6beb
>namely, genocide, a role in putting a fascist, white supremacist in the White
House

A lot of people stopped reading the article right there.

Writers like this only reach a certain audience.

------
foobar_
Can't algorithms for spam mail detection be useful for detecting fake users
and bots ?

------
Proven
Fake accounts aren't a Ponzi

------
PaulHoule
This explains quite a few things about Facebook.

Sheryl Sandberg hasn't been thrown overboard because if she is thrown
overboard she might talk.

Mark Zuckerberg won't allow the appointment of an independent Chairman of the
Board because one thing about people who run Ponzi scams is that they try to
keep as small a circle of people as possible in control so that news won't
leak out.

------
5trokerac3
> 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?

False. Facebook made $50M in profit the year before it took its Series A. It
has always been a profitable company[0].

[0]
[https://www.macrotrends.net/stocks/charts/FB/facebook/profit...](https://www.macrotrends.net/stocks/charts/FB/facebook/profit-
margins)

~~~
jasode
_> It has always been a profitable company[0]._

No, Facebook was founded in 2004 and it took 5 years to make its first profits
in 2009:
[https://www.theatlantic.com/business/archive/2009/09/faceboo...](https://www.theatlantic.com/business/archive/2009/09/facebook-
turns-a-profit-users-hits-300-million/26721/)

Your cited chart only begins at 2009 instead of 2004.

Also, if we count Accel Partners $12.7 million in 2005 as the "Series A"
investment, Facebook was not yet profitable at that point.
([https://fortune.com/2011/01/11/timeline-where-facebook-
got-i...](https://fortune.com/2011/01/11/timeline-where-facebook-got-its-
funding/))

~~~
5trokerac3
> According to the S-1, Facebook made a modest $382,000 in revenue 2004, $9
> million in revenue in 2005, $48 million in revenue in 2006 and $153 million
> in revenue in 2007, with no reporting of net loss.[0]

Seems like we're both wrong. FB was profitable before '09, but it did have a
couple years of loss.

[0] [https://techcrunch.com/2012/02/01/facebook-ipo-facebook-
ipo-...](https://techcrunch.com/2012/02/01/facebook-ipo-facebook-ipo-facebook-
ipo)

~~~
jasode
No sure where the journalist (Alexia Tsotsis) got the data to write: _"
$382,000 in revenue 2004, $9 million in revenue in 2005, $48 million in
revenue in 2006 and $153 million in revenue in 2007, with no reporting of net
loss."_

Those figures are not anywhere in the actual S-1:
[https://www.sec.gov/Archives/edgar/data/1326801/000119312512...](https://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm)

In fact, page 40 of the S-1 clearly shows a 2007 _loss_ of -$138 million which
contradicts what the Techcrunch author wrote.

------
adventured
Some embarrassingly very ignorant statements here by Greenspan.

> 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?

Facebook has been wildly profitable since approximately the end of 2008. Five
years after its founding, in 2009 - long before Greenspan's setup premise -
they turned a $229m profit on $777m in sales. For fiscal 2011 that was a
billion in profit. Any start-up in world history would be envious of that
extreme profitability so early into existence.

In terms of millions of daily active users or users in general, Facebook
wasn't suffering in terms of growth in 2012 or 2013. Greenspan is flat-out
lying here. They went from 483 million daily active users at the end of 2011,
to 665 million at the end of 1Q13. They added 135m daily actives in 2012, 28%
DAU growth after eight or nine years. A strong number given their immense size
at that point.

