Facebook and Twitter – Sliding shares and social scandals

31st July 2012

Facebook is more than ever living up to the alternative moniker of Fadebook. With the shares trading at $23.15, the social media group has lost a shade short of 40 per cent of its $38 IPO value in May. It's so far a disaster for investors.

And that includes investment bank UBS, a market-maker for Facebook's IPO, which reported losing $355.7 loss in the latest quarter, as a result of the share issue. This effectively halved its overall profitability.

It blames Nasdaq's "gross mishandling" of the offer and plans to take action against the exchange. Presumably, other investment banks involved in the IPO will also have to report losses.

Most of the anti-Facebook sentiment focuses on an over-ambitious IPO and well-documented problems in adapting its advertising model to mobile platforms.

Was it a bot – or not?

But now it stands accused of allowing clicks which are generated by internet bots . While there is no suggestion that Facebook is aiding the creation of these non-revenue producing links, one small company says it is fed up with paying for 100 clicks when it can only verify 20 or so of these as coming from real enquirers.

According to Techcrunch , US company Limited Run, a start-up software platform for musicians and labels to sell physical products like vinyl records, says it has reached the final straw with its experience as a small business advertising on Facebook – and as a result is completely withdrawing its presence on the social networking platform.

Limited Run's complaint is it has discovered 80 per cent of the clicks it is receiving on Facebook appear to be coming from bots, rather than real people.  The company says: "A couple of months ago, when we were preparing to launch the new Limited Run, we started to experiment with Facebook ads. Unfortunately, while testing their ad system, we noticed some very strange things. Facebook was charging us for clicks, yet we could only verify about 20% of them actually showing up on our site. At first, we thought it was our analytics service. We tried signing up for a handful of other big name companies, and still, we couldn't verify more than 15-20% of clicks. So we did what any good developers would do. We built our own analytic software. Here's what we found: on about 80% of the clicks Facebook was charging us for, JavaScript wasn't on. And if the person clicking the ad doesn't have JavaScript, it's very difficult for an analytics service to verify the click."

Bots pushing up publicity expenses

It continues: "The 80% of clicks we were paying for were from bots. That's correct. Bots were loading pages and driving up our advertising costs."

It gets more technical but the long and short of it is that Limited Run has pulled out of Facebook as a result of its limited success with the social media giant.

It tried to confront Facebook but Limited Run claims it was "met with indifference", an automated response about how ‘all analytics services track differently'.

Now this could be one small start-up with its own problems including deliberate attacks from competitors, or it could be a questionable way for Limited Run to gain publicity traction, knowing that investors who are short of Facebook will grab onto any negative news.  But it could also be the tip of an unhappy iceberg affecting many other firms.  Whatever,  Limited Run complains it is paying for clicks which lead nowhere and that Facebook is not prepared to enter into a dialogue.

Facebook and a full investigation 

Facebook has subsequently said it will carry out a full investigation into the problem.

In Facebook's earnings call last week, Facebook CFO David Ebersman said that Facebook is actively working on making sure that its social network is populated only by real people – not bots.

But away from the micro-issues, which may or may not be relevant to investors, Facebook fans have to focus on how the site goes forward in its odyssey from select network for select university students to universal site for a large part of connected humanity.

Should it become more niche? More focused on fewer but potentially more profitable users? Or remain the same and go for everyone? 

Bloomberg for travellers

Rafat Ali is an internet entrepreneur who set up paidContent, described as "a mix of original reporting and aggregation tailored for a savvy, niche, information-hungry audience." He sold the site to Guardian Media Group in 2008 and left in 2010.

Now he's back with a new project Skift, the Swedish word for "shift", aimed at travel users. He says that though the U.S. travel industry brings in $2 billion a year and employs 100 million people, there's no one website where industry executives and business travellers can go for information. Skift will be a website focused on travel news, data and services.

The ambition is to be a media company in the travel industry in the same way Politico or Bloomberg work for politics and business. It sees itself as "an information provider with a news wrapper."

But Skift wants to be more than just a curator of travel news. It wants to collect a vast data library to build tools that would be useful not just to the travel industry but anyone hoping in a car, train or bus to get away.

Ali has funded the site himself up to launch and has raised $500,000 from investors.

Whether it works or not, only time will tell. But it is just one of the many models that confront Facebook.

Tweeting no more

Twitter is often spoken of in the same sentence as Facebook. Limted Run, for instance, wants to switch its fanbase to the 140 character site.  It is famed for freedom of expression. That reputation could be under threat, however, if the experience of one Independent journalist is any guide.

Guy Adams has his Twitter account suspended because he used the micro-blogging site to complain about US broadcaster NBC's coverage of the Olympics.

Whatever the rights and wrongs of this and whether he fully understood Twitter's rulebook or not, the episode claiming commercial links between Twitter and NBC are negative.

But bad publicity for a rival can take the heat off a firm's negative media.  So Twitter's run in with Adams will be at least welcomed in one place – Facebook's Californian headquarters.


More on Mindful Money

What makes a social network an investment success?

Could social networks provide a moral compass for the City?

Facebook IPO: Social not-working

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