Facebook inflated the average time users watch the videos on their platform by over 60%, misleading the advertisers about the actual performance of their ads.
The Wall Street Journal reported yesterday that the biggest social media network has been misreporting on its major video metrics data to the clients for the past 2 years. Facebook (NASDAQ: Facebook [FB]) only counted video views that are more than 3 seconds, which considerably inflated the average viewing time. People familiar with the matter said that the average time users spent watching the videos was inflated by somewhere between 60% to 80%, as all views under 3 seconds were simply neglected.
The main problem is that the advertising companies who spent millions of dollars on advertising their products and services on Facebook based their campaign budgets on distorted metrics for such a long period of time. Facebook has already admitted the metrics problem and issued an official statement saying that the company informed the affected advertisers. However, the company says that the metrics miscalculation did not affect their billing processes with the partners in any way.
“We recently discovered an error in the way we calculate one of our video metrics. This error has been fixed, it did not impact billing, and we have notified our partners both through our product dashboards and via sales and publisher outreach. We also renamed the metric to make it clearer what we measure. This metric is one of many our partners use to assess their video campaigns,” Facebook wrote in a statement.
But the advertisers say that Facebook's reputation as a prominent advertising platform will be largely affected by this. Because of the wrongly calculated data, reports the WSJ, marketers may have severely overestimated the performance of their videos on the platform and possibly dedicated larger budgets. In addition to that, the attractive numbers Facebook presented as its "Average Duration of Video Viewed" metric influenced the very decision of the marketers to push their ads through Facebook instead of other competitor platforms such as YouTube, Twitter (NYSE: Twitter [TWTR]) and many others.
The WSJ mentions one of Facebook's big advertising clients, Publicis, who spent over $77 million on Facebook ads only last year. Obviously, the company is not so pleased with these news. The company's spokesperson told the WSJ that they were disappointed with Facebook and the company's effort to launch a new improved metric system was just "coming up with new names for what they were meant to measure in the first place".
In the comment, Publicis refers to Facebook's promise to reconsider their metrics mechanisms and introduce a "new" metric called "Average Watch Time" that corrects the pitfalls of the previous metric. Upon the announcement of the miscalculations, Facebook's biggest advertising partners asked for a detailed investigation on this.
The metrics miscalculation is particularly embarrassing for Facebook as the company claimed the video and video advertisement to be one of the central drivers of its business strategy this year. And, as Zuckerberg himself said only a few months ago, he wanted the company to be "video first". Facebook's interest in video ads can also be explained by the fact this type of advertisement is a "pot of gold" for the platform, as compared to the normal social media ads that Facebook used to work with before, because the video advertisement budgets are much higher. In this year's Q2, Facebook made $6.24 billion in ad revenues, overperforming the analysts' predictions.
This also spurred the discussion around large tech companies allowing very limited third party intervention into the measurement of analytical data that has been going on for several years. Publicis' spokesperson told the WSJ:
"This once again illuminates the absolute need to have 3rd party tagging and verification on Facebook’s platform. Two years of reporting inflated performance numbers is unacceptable."
According to Bloomberg, Facebook's management will meet with several top advertising clients in the course of the next week to discuss the issue. Facebook's shares are at $127.78, down more than 1.7% before the market opening today.