Between 2015 and 2016, Facebook Inc. (NASDAQ:FB) allegedly ran what has turned out to be one of the biggest scams in the online advertising business. While the company has vehemently refuted the claims, it has had to settle the allegations as a way of avoiding lengthy litigation that could affect its reputation in the highly lucrative advertising business.
Video Metrics Inflation
The allegations stem from claims the company inflated video metrics as a way of gaining a competitive advantage and encouraging video marketers to spend more on video ads. As part of the scheme, the tech giant allegedly used a wrong formula to calculate the amount of time that people spend watching videos on its flagship app.
By inflating the watch time, Facebook appears to have attracted more video marketers that were looking to target a wider target audience with video ads. The scheme turned out to be a success as marketers went on to spend more money on the belief that their videos were having the desired impact in terms of engagement levels with the target audience.
Unknown to marketers is that Facebook had used an incorrect algorithm that inflated watch times by as much as 900%. The fact that video marketers went on to spend more money on Facebook amounts to bad business practice, in the part of Facebook, as most of them relied on incorrect information to make decisions.
Facebook $40 Million Settlement
Facebook is yet to take full responsibility for furnishing video marketers with incorrect information. The advertising juggernaut maintains that the error in video watch time only affected videos posted by marketers on the network for free. The company has sought to absorb itself from any wrongdoing by reiterating the incorrect algorithm did not affect paid ads.
Claims that Facebook knew about the falsified watch times earlier than marketers did and failed to do anything, raises serious integrity and business ethics questions. The company agreeing to a $40 million compensation to settle the inflated video metrics claims amounts to acceptance of wrongdoing even as the company continues to deny the allegations.
Similarly, the settlement amount appears to be a slap on the wrist, considering that the inflated video metrics affected close to 1.35 million advertisers. Facebook has so far moved to put its house in order as it looks to shrug off the inflated video metrics scandal. The company has partnered the Media Rating Council, which will audit its video metrics, as a way of ensuring marketers know exactly what they are paying for.