Facebook knew a key ad metric was ‘inflated and misleading’ for years, lawsuit alleges

Facebook allegedly gave its advertisers “inflated and misleading” metrics on how many people their ads could reach for years, according to newly revealed court documents in a long-running lawsuit against the company.

The documents, unsealed on Wednesday by the US District Court for the Northern District of California, cite emails from a Facebook employee saying the company received “revenue we should have never made given the fact it’s based on wrong data.”

The lawsuit alleges that the problems with the metric, known as potential reach, were “largely due to fake and duplicate accounts,” but Facebook chose not to remove those accounts.

According to internal documents cited in the lawsuit, the product manager suggested changes to potential reach that would have decreased its numbers, but Facebook managers rejected the idea because the “revenue impact” would be “significant.”

The lawsuit, originally filed in 2018 by a group of small businesses, cited internal emails in which Facebook COO Sheryl Sandberg acknowledged as far back as 2017 that she had been aware of the problems with the metrics for several years.

Facebook pushed back against the allegations.

“These documents are being cherry-picked to fit the plaintiff’s narrative,” Facebook spokesperson Joe Osborne told CNN Business, calling potential reach “a helpful campaign planning tool that advertisers are never billed on.”

“It’s an estimate and we make clear how it’s calculated in our ads interface and Help Center,” he added.

But advertisers often decide how much to spend on advertising based on how many people they can reach, a reality the lawsuit alleges Facebook admitted internally.

In internal documents cited by the lawsuit, the company acknowledged that “advertisers ‘frequently rely’ on Potential Reach … [and] this number is arguably the single most important number in our ads creation interfaces.”

Metrics related to Facebook’s advertising business, which accounts for nearly all of its revenue ($28 billion last quarter), have been the subject of scrutiny and controversy on several occasions in the past.

The company admitted in 2016 that it had miscalculated — and in some cases overstated — several metrics relied on by advertisers, including the number of completed video views and the total organic reach for business pages. An analyst report in 2017 challenged claims that Facebook’s advertising platform could reach millions more young adults in the United States than are estimated to actually live in the country. Facebook told CNN Business at the time that the metrics were “not designed to match population or census estimates.”