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Lawsuit Accuses Facebook of Inflating Its Advertising Metrics for More Revenue

Facebook is in hot water once again. 🔥 This time, it’s for allegedly inflating estimates about how many people would see its targeted ads. Facebook allegedly did this so they could make more money, according to lawsuit documents that were made public last month. 

The social media titan is facing a class-action lawsuit that accuses its managers of knowing that its so-called “Potential Reach” measure was misleading. However, the platform didn’t do anything to fix the situation because that would cause revenue loss, the lawsuit claims. 

Facebook, of course, denies any wrongdoing. But this isn’t its first rodeo, and it definitely won’t be its last. Let’s take a look at what Facebook did and whether or not this lawsuit holds water. 🌊

What Did Facebook Do?

Facebook gets the majority of its revenue from targeted advertising. Prices for advertising on the platform vary depending on many factors, including the number of users likely to see an ad campaign. 

The lawsuit, which was filed by a small business owner in 2018, contends that Facebook knew for years that its “Potential Reach” metric was inflated and misleading (the metric is used to show advertisers their potential audience size). That metric apparently measured accounts, including duplicates or fakes, rather than actual people.

Facebook reportedly made a deliberate decision not to remove duplicate or fake accounts from its Potential Reach metrics. Instead, the company is accused of actively trying to hide the problem.

A product manager in charge of Potential Reach reportedly suggested changing the definition of the metric in 2018 to make it more accurate. They proposed changing it so it would no longer include the words “people” or “Reach” and make it clearer that it was based on accounts, not people. However, internal emails suggest the Facebook executives overseeing metrics rejected the proposal because the “revenue impact” would be “significant.” 

A 2018 analysis by Facebook found removing duplicate accounts would cause a 10% drop in revenue, the lawsuit alleges. That would be a pretty big hit. For context, the company generated $84.2 billion in advertising revenue last year. A 10% drop would be $8.42 billion in losses! 💰

A Facebook spokesperson said the documents are “being cherry-picked” 🍒 to fit a false narrative. According to Facebook, the Potential Reach tool is only “an estimate.” The platform is clear about how it’s calculated. It contended that the feature is just a “free tool” available to advertisers that doesn’t affect how ads are delivered. However, the company modified the tool in 2019, press sources indicate. 

The social media giant is seeking to have the two-year-old lawsuit thrown out, but lawyers representing the plaintiffs in the case have called on a federal court in San Francisco to reject the request.

What Other Lawsuits Has Facebook Faced?

Facebook is no stranger to legal controversy. Just last week, a judge approved a $650 million settlement of a privacy lawsuit filed against Facebook in 2015. The settlement is being called the largest settlement for a privacy violation in history! 👏

The platform is accused of violating Illinois’ Biometric Information Privacy Act (BIPA). Biometric information is basically stuff about you (fingerprints, voice, retina, DNA, facial characteristics, etc.) that can be used to identify and track you. 🏃 The law allows consumers to sue tech companies that don’t ask for consent before collecting biometric data.

Facebook allegedly collected the facial characteristics of its users via a facial-recognition tool without getting consent first. It reportedly scanned uploaded photos and created digital “face templates.” It then used the templates to tag individuals in photos without first obtaining permissions from the tagged individuals, sources allege. Under BIPA, each privacy violation can be fined between $1,000 to $5,000 per violation, depending on the severity of the offense. 😲

Facebook agreed to settle last year, and a federal judge finally approved the settlement last month. That means nearly 1.6 million claimants can expect a $345 check in the mail in the coming months. 💵

“We are pleased to have reached a settlement so we can move past this matter, which is in the best interest of our community and our shareholders,” Facebook said in a statement. The platform reportedly changed the face-tagging system after the lawsuit was filed in 2015.  

What Does This Mean for Advertisers?

Advertisers definitely won’t stop using Facebook for advertising any day soon. It’s still the most popular platform for online advertising because it offers businesses so many metrics, including age, interests, behavior, and location. 

Lawsuits like the one over the “Potential Reach” metric will likely become rarer as Facebook continues to refine its ad products. However, if you’re a business owner who believes that a social media platform has breached the terms of its agreement with you, then maybe you should consult a social media attorney. Just because the offender is a company with a billion-dollar market capitalization doesn’t mean it’s above the law!