More Bugs Found In Facebook’s Ad Metrics; Will It Impact Advertiser Confidence?

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In September, Facebook (NASDAQ:FB) announced that there were some errors in its video viewership data and that it had vastly overestimated the average time spent by users on watching videos for the last two years. By excluding those video views with an average time of less than 3 seconds, Facebook had overestimated average time spent watching videos by 60% to 80%. [1] This wasn’t received too well by advertisers, as the misleading data had potentially led them to misspend their ad dollars over the last two years, when Facebook claimed to be improving its video usage quarter over quarter.

However, the errors didn’t end there. Facebook just recently announced that it had uncovered some more bugs in its page views, instant article views and video views data. Per the company’s new blog series on metrics and reporting:

  1. The 28-day organic page reach metric should have been lower by 55%
  2. The average time spent per instant article had been over-reported by 7-8%
  3. Referrals were overstated by an average 6%
  4. Total number of followers for profiles that created interest lists was overstated by 5%
  5. “Video watches at 100%” had been understated and its count should have been 35% higher than earlier reported

Facebook said that all these bugs will be sorted out in the coming weeks, but the discrepancy in data reporting indeed raises questions about the company’s reporting accuracy and the platform’s appeal to advertisers. Facebook and Google control a dominant share of the digital advertising market (45-50% by revenue) and they both have been very reluctant to share detailed analytics for effective measurement of advertising impact on potential consumers. Therefore, advertising pricing and measurement of advertisement effectiveness have not been as transparent and objective as advertisers would have liked, providing good reason for advertisers to be annoyed at Facebook’s current data discrepancy mess.

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Having said that, Facebook is owning up to the errors, and taking steps to become more transparent, which should help in assuaging some of the immediate concerns of advertisers. Facebook crossed the milestone of 4 million advertisers on its namesake main site in September, growing its advertiser base at an average rate of 167,000 per month in Q2 and Q3 this year. A vast majority of these advertisers are small businesses, and 70 percent of them are outside the U.S.fb-7

Therefore, it becomes important for Facebook to not lose trust with advertisers and engage them in a constructive way going forward. In an effort to boost transparency, Facebook is launching new ways to verify viewership metrics through third-party viewability verification partners, including Moat, IAS and comScore. For publishers, the company is partnering with Nielsen to include Facebook video and Facebook Live viewership in Nielsen’s Digital Content Ratings (DCR). It is also working on establishing a Measurement Council, on the same lines as Facebook’s Client Council, to engage members and businesses in bringing about more clarity in viewership measurement and data analytics.

Facebook: Advertising Numbers fb-27

Advertising, Facebook’s primary source of revenue, grew 59% to over $6.8 billion in the third quarter of 2016 driven by growth in mobile ad revenues across geographies. Mobile ad revenues contributed 84% of total advertising revenues, up from 70% in the same period last year. Mobile ad revenues grew both because of an increase in frequency of ads shown in News Feed and the price per ad. The average price per ad increased 6% and total ad impressions rose 50% in the Q3 2016 over the same period last year.

Facebook management stated that advertising growth is likely to come down meaningfully in 2017 because the company is going to focus on keeping ad impressions at sustainable levels. Therefore, the next wave of ad revenue growth is expected to come from price per ad and user growth. It is difficult to estimate how the company’s average price per ad will trend in the short term considering the current viewership data controversy. The company might have to moderate ad prices a bit to keep advertisers on-board and sustain long-term relationships. We will keep a keen eye on any developments.

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Notes:
  1. Facebook Overestimated Key Video Metric for Two Years, WSJ, Sep 22 2016 []