Why advertisers may want to ask Facebook for a discount

Fake accounts remain a problem for Facebook. Photo / Getty Images

Facebook or Fakebook? In the last quarter of 2020 the US social media giant disabled 1.3bn fake accounts — a tally equal to almost half its real monthly active users. User accounts are the basis for advertising sales that make up almost all of Facebook's revenues. If a percentage of accounts are fake, advertisers should be demanding a discount.

For the past two years, Facebook has been removing at least 1bn fake accounts each quarter, most as soon as they are created, it claims. Despite increasing its headcount by 30 per cent last year, and claiming "the most advanced systems in the world" to address fake accounts that spread misinformation, the problem has lingered.

This figure does not include all inauthentic accounts. In filings with the US Securities and Exchange Commission, Facebook acknowledges that up to 5 per cent of the 2.8bn accounts it counts may be false, including bots, and another 11 per cent may be duplicates, a percentage unchanged since the previous year. This means more than 448m inauthentic accounts. As Facebook moves to increase engagement in emerging markets, the problem could get worse. Facebook admits duplicate accounts are "meaningfully higher" in markets like the Philippines and Vietnam.

Sales rose 22 per cent last year but Facebook's targeted advertising model is under pressure. Apple will soon introduce a new feature that will make it easier for users to stop providing third-party data that facilitate personalised ads. Facebook expects high opt-out rates.

Yet analysts and investors seemingly skim over the scale of inauthentic accounts. Large advertisers are funnelling more money to Facebook amid the general shift to online spending.

There are two potential repercussions from inauthentic accounts. Advertisers could use these to argue for lower rates, slowing revenue growth. Facebook could also decide to ramp up spending on fake-busting measures. That would hold back operating margins that have climbed from 34 per cent in 2019 to 38 per cent in 2020.

Pervasive fakery is just another aspect of big tech that undermines its credibility with politicians, regulators and the public.

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- Financial Times