Should you be concerned about the latest Facebook scandal?


On July 30, a custom online store creator called Limited Run effectively accused Facebook (Nasdaq: FB) of extortion, and came just short of accusing the social network of fraud.

In a post that has since been deleted, Limited Run, known at the time as “Limited Pressing,” said that it had trouble verifying the source of roughly 80% of the clicks on its Facebook ads. Separately, the company claimed a rep said Facebook would need a US$2,000 per month ad spending commitment in order to change its name.

Limited Run has since taken its business to Twitter, where it says it won’t be “shaken down.” Facebook, for its part, has issued a statement to News.com, but it does little to answer accusations:

“We’re currently investigating their claims. For their issue with the Page name change, there seems to be some sort of miscommunication. We do not charge Pages to have their names changed. Our team is reaching out about this now.” [Emphasis added.]

A miscommunication? Uh-oh.

I see two problems here. First, someone took the time to try and log Facebook click traffic and found the results troubling. Google (Nasdaq: GOOG) has spent years fighting so-called “click fraud” with increasingly sophisticated tools. salesforce.com (NYSE: CRM) and Jive Software (Nasdaq: JIVE) have built entire businesses out of measuring the impact of clicks, tweets, and posts. The social network has to be at least as good as these peers at demonstrating value, but if Limited Run is correct, Facebook lacks many of the tools advertisers need.

Second, while I don’t doubt that there was a “miscommunication” over the terms for changing a page’s name, the accusation comes at an awful time. Facebook just reported zero profit gains on a 32% year-over-year jump in revenue in the second quarter. Results like that make it too easy for sceptics to believe a rep would pressure a customer into buying more ad space.

Who’s right? I think there’s a grain of truth in what both Facebook and Limited Run are saying, and that’s troubling to me as one who still believes in the social network.

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The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Tim Beyers, originally appeared on fool.com

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