Facebook's funny accounting has "active users" who never use Facebook

The NYT's Andrew Ross Sorkin quotes Barry Ritholtz's digging into how Facebook's IPO documents define "active" users and finds that many of them may never visit the site. Facebook counts you as "active" if your only involvement with the service is setting it up to republish your Twitter feed, or if you click "Like" buttons but never log in to the actual service. This should matter to investors, since Facebook earns no advertising revenue from those users, though it may earn some other income by reselling the private details of their browsing habits as gleaned from its tracking cookies.

In other words, every time you press the “Like” button on NFL.com, for example, you’re an “active user” of Facebook. Perhaps you share a Twitter message on your Facebook account? That would make you an active Facebook user, too. Have you ever shared music on Spotify with a friend? You’re an active Facebook user. If you’ve logged into Huffington Post using your Facebook account and left a comment on the site — and your comment was automatically shared on Facebook — you, too, are an “active user” even though you’ve never actually spent any time on facebook.com.

“Think of what this means in terms of monetizing their ‘daily users,’ ” Barry Ritholtz, the chief executive and director for equity research for Fusion IQ, wrote on his blog. “If they click a ‘like’ button but do not go to Facebook that day, they cannot be marketed to, they do not see any advertising, they cannot be sold any goods or services. All they did was take advantage of FB’s extensive infrastructure to tell their FB friends (who may or may not see what they did) that they liked something online. Period.”

Those Millions on Facebook? Some May Not Actually Visit (via Memex 1.1)

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  1. Being that you have to be logged in to “Like” something, there might be a little forest-for-the-trees going on here, where ARS/NYT doesn’t understand the mechanism behind the feature.

  2. parsing between facebook services users (‘likes’ on nfl.com, etc.) and facebook.com social network users? Individual server hits are counted at some point and those generating that interactivity at the facebook domain have to be called something. Aggregating them does not strike me as dishonest. Because  the facebook services use, as reflected on facebook.com to its users, makes facebook.com “deeper”, albeit in the most topical sense.

        1. to differentiate the users who go to that specific address from those who click a widget at another address, a distinction that Cory seems to think is unethically crossed by the way numbers of things have been counted by the people who actually own the things.

          1. Ah.  People do that all the time though when referring to well-known websites.  But you wouldn’t hear people casually referring to New York Times Inc., which is basically the same thing.

  3. Hate to say this, but it was pretty obvious from the beginning they were using funny accounting for the IPO. It’s the most overvalued company in the history of mankind. There’s no user data that they can mine. Their click through rate is less than one half of one percent.
    The IPO, for all intents and purposes, is a joke, because all the insider trading by Congress and other Gilded folks means the initial offering price is completely unrealistic.

    1. …it was pretty obvious from the beginning they were using funny accounting for the IPO

      Since lying is the norm in these situations, maybe we should just call telling the truth ‘funny accounting’.

    2. It’s been my perception that for a lot of sketchier tech companies, the IPO primarily exists as a means to cash out.  With that in mind, the incentive is to produce the maximum level of funny accounting.

  4. Yea we all know FB accounting was suspicious like many internet properties.  At some point I hope investors realize this and we can get back to investing in companies that make something.  Long live rusty old school economics!

  5. They ARE active users for revenue once facebook tries to compete with doubleclick and place adds outside of Facebook itself.

  6. I don’t think this is really even much of a find. They are active users in a sense that’s actually quite valuable, which is that they are adding content to the stream on facebook.com – the frequency of new stream content is directly tied to people’s desire to check it, which is exactly how facebook generates ad revenue. Not really anything to see here, but nice try.

    1. Exactly.  Thinking about the number of “active users” reported by Facebook as the number of eyeballs to be served ads is a very Web 1.0 way of looking at it.   

  7. I am thinking about it, Barry Ritholtz. I’m thinking there are a bunch of users who are merely using Facebook for what users think Facebook IS ACTUALLY FOR- though you and I know, wink wink, it’s really only exists to generate click revenue. How you get the user to stick around could be a-n-y-t-h-i-n-g, even porn. Yes, from the corporate point of view, the average Facebook user might as well be surfing porn, for all marketers care.

  8. Sounds like this would include bots also. I remember being asked not to investigate bogus users that were suspected of spam/abuse, to maintain the view that those spam-bots were instead happy visitors. This goes on all the time at dotcoms.

  9. They set a low bar for entry and end up with lots of one-clicks.  That’s the price of making the service easy to access.  

    It’s difficult to count those out because there’s no easy-to-define threshold for what a “real” user is.  After all, if the service is really valuable, maybe one click is all you need.  

  10. If you clicked a “Like” button anywhere on the internet, you are a Daily Active User. Even if you never go to Facebook.com on the day you click “Like.”
    Why does this matter? Consider what this means in terms of monetizing their “daily users.” If all user does is click a like button, but never make it to Facebook that day, they cannot be marketed to, they do not see any advertising, they cannot be sold any goods or services. All they did was take advantage of FB’s extensive infrastructure to tell their FB friends (who may or may not see what they did) that they liked something online. Period.

    http://www.ritholtz.com/blog/2012/02/whos-a-daily-facebook-user-anyone-who-clicks-like/

    1. No, but those users you dismiss are marketing things.

      A friend liking a thing has a profound impact on many humans. 

  11. I am an active user of FB – but I see no ads ever. Nor do any of my friends or family. Why? – Because we all use Ad Blocker Plus. I wonder if they are taking this in to account? 

  12. You mean “not monetizing” until they launch their own AdSense-like ad network.

    Then no one will care about logins to Facebook (the site), but how many tracking cookies are out there…

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