Andrew Ross Sorkin
Facebook?s ?like? logo at the entrance to the company?s headquarters. Some of those ?likes? from ?active users? are coming from other sites. On the first page of Facebook?s prospectus for its sale of stock to the public, it pegs the number of its ?monthly active users? at a whopping 845 million people. The social networking site arrives at an even more astounding number when it comes to ?daily active users?: 483 million. If it is hard to believe that so many people are clicking on http://www.facebook.com every day, that?s because well, they aren?t, exactly. If you managed to wade through to Page 44 of Facebook?s prospectus, you?d discover that the company provides a definition of an ?active user??and it is unlikely to be what you expected.
A user is considered active if he or she ?took an action to share content or activity with his or her Facebook friends or connections via a third-party website that is integrated with Facebook.? Every time you press the ?Like? button on NFL.com, for example. Perhaps you share a Twitter message on your Facebook account? Have you ever shared music on Spotify with a friend? 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 monetising 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.? Facebook appears to be using the term ?active? as a euphemism for ?engaged? rather than how many users are going to its site every month.
The company acknowledged that ?there are inherent challenges in measuring usage across large online and mobile populations around the world? because, for example, ?applications on certain mobile devices may automatically contact our servers for regular updates with no user action involved, and this activity may cause our system to count the user associated with such a device as an active user of Facebook?. Still, the company says this kind of fictitious usage accounts for less than 5% of its totals.
This is not the first time that a dot-com company?s metrics have come under scrutiny. Groupon created a ridiculously misleading metric that included all sorts of income, but excluded marketing costs. SEC raised questions and the company dropped the metric. Facebook?s definition of ?active? is nowhere near as problematic and it does not appear that Facebook is trying to deceive investors. Facebook?s accounting is more transparent than that of some of its rivals. Google was recently criticised for disclosing only the number of registered users on its Google+ service, not how many people actually use the service regularly. Twitter has similarly been criticised. At least Facebook is trying to count only those people who are somehow engaged with the service in a meaningful way.
In fact, all of those ?Likes? help it create a treasure trove of data that should make its ability to target advertising more valuable. And there is no question that Facebook users are an engaged bunch and growing. A Pew Study recently rebutted ?Facebook Fatigue?: ?We found no evidence among our sample that length of time using Facebook is associated with a decline in Facebook activity. On the contrary, the more time that has passed since a user started using Facebook, the more frequently he/she makes status updates, uses the ?like? button, comments on friends? content and tags friends in photos.?
The big question is how Facebook can put all of its engaged users in front of advertising? At the moment, none of its mobile users?which the company counts as 425 million of the 845 million monthly active users?see any advertisements. That is likely to change. Will Facebook one day be able to force third-party websites that have integrated its ?Like? button into their pages to also accept a small ad next to it? Perhaps.