Today The Official Merchant Services Blog delves into the intricate and fascinating world of social media marketing and the pitfalls of Click Fraud. Our interest stems from a recent news story: Limited Pressing, an e-commerce company provides a platform for selling digital music and physical items, stated that they are dropping their Facebook page and removing their company’s Facebook presence because it determined that 80% of the clicks it paid for through Facebook advertising were fraudulent.

What is Click Fraud?

Click fraud is an illegal practice that occurs when individuals click through advertisements — either banner ads or paid text links — to increase the payable number of click throughs to the advertiser. The fraudulent clicks could either be performed by having a person manually click the advertising links or more typically by using automated software or Online bots that are programmed to click these ads repeatedly. Click fraud is sometimes perpetrated by individuals who use the tactic to increase their own personal banner ad revenues; but the most common strategy is click fraud gets harnessed by companies as a way to deplete a competitor’s advertising budget.

This is where Limited Pressing’s problems with their Facebook Page comes in. They feel that the click fraud was eating up their ad budget and making the oft-lauded and extremely popular advertising tool too costly and ineffective.

Limited Research

In this article at clickz.com, Limited states that it determined over a one-month testing period that 80 percent of their Facebook ad clicks were performed by bots. The company doesn’t really delve into where the bots come from, and instead focus their criticism on Facebook’s entire ad platform — suggesting its findings indicate Facebook has a big click fraud problem.

Limited detailed the process they used to determine this bold assertion of click fraud:

“A couple 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. What’s important here is that in all of our years of experience, only about 1-2% of people coming to us have JavaScript disabled, not 80% like these clicks coming from Facebook.

So we did what any good developers would do. We built a page logger. Any time a page was loaded, we’d keep track of it. You know what we found? The 80% of clicks we were paying for were from bots. That’s correct. Bots were loading pages and driving up our advertising costs.”

Clickz.com pressed the company for more details on the process they used and the data Limited obtained. But the company had nothing prepared to share with the site yet.

Facebook Strikes Back

Facebook defended its program and its protocols in response to Limited’s claims. The company has said it is investigating the claims that Limited has made, and noted that it has defenses in place for such kind of fraud. A fake click, Facebook said, would come from a fake account, which would be disabled immediately upon discovery.

This Computer World article details Facebook’s defense that the company supplied in an e-mail.  The article reveals that Facebook has systems in place that attempt to detect and filter certain click activity, including repetitive clicks from a single user, clicks that appear to be from an automated program or bot, or clicks that are otherwise abusive. Facebook’s systems also look at whether JavaScript is enabled in the browser. And the company reports that according to recent data, nearly all billable clicks resulting from desktop web browsers have JavaScript enabled.

Also, in a second quarter earnings report conference call Facebook said they are continually making efforts to reduce fraudulent activity and fake accounts by becoming better at detecting duplicate accounts.

As reported by clickz.com:

“On a macro level, Facebook now has independent ROI data from more than 60 advertising campaigns using a variety of third-party methodologies like panels and marketing mix models. The results show that 70 percent of campaigns resulted in a return on ad spend of 3x or better, and 49 percent of campaigns showed a return on ad spend of 5x or better.”

Facebook COO Sheryl Sandberg said during that conference call that “attribution is an issue. Marketers need to tie sales back to multiple touches; they may see on Facebook and search later. Our ads work and the ROI is there, so we’re focusing on education.”

The Big Picture

This issue is an important one for payment processors and merchants alike. Much has been made of social media and marketing. Facebook’s ad service is a huge windfall for the company. Much of what I myself have learned about marketing through social media has come directly from webinars and videos I’ve seen given by Sandberg. So if Limited’s claims are anywhere close to accurate, this could be devastating for Facebook — and equally positive for competitors like Google and its Google+ social media hub that still trails Facebook in popularity.

Essentially Facebook ads are at the forefront of the immense push people have made into spending money on social media marketing campaigns. So if only 20% of that money is doing the job, it’s an extreme waste of resources for businesses.

In Facebook’s Defense

There’s much to be said in defense of Facebook at this time however.

First of all, the company is very diligent in its pursuit of click fraud. In our January blog, we explored the activity called Clickjacking and detailed how Facebook has been fighting to curb that kind of fraud. And since the company is now extremely invested in its own profits after its IPO, it really is common sense that they are being forthright in their responses and really are doing the best job they can to curb fraud.

Secondly, Limited’s credibility takes a hit with the other issue it brought to light in its criticism of Facebook. It claimed that Facebook was  allegedly holding Limited’s  page name hostage. What Limited said was that it wanted to change its name on its Facebook page and that after repeated attempts to contact Facebook about the issue, Limited received a response. Facebook, Limited alleges, would make the name change for Limited if the company agreed to spend $2,000 a month or more in advertising.

Here’s where Limited’s credibility starts to wane. Limited Pressing wants to change its name to Limited Run. That name has been in use by a magazine since October 2010. So there’s no way Limited could get the name changed. Facebook also states that it does not charge for name changes. Facebook clarified that they have a process that business pages have to go through to get a name changed so that it doesn’t confuse its users if a business repeatedly changes its name or changes it to something unrelated. So Limited’s claims of Facebook holding its desired name hostage don’t seem to really pan out, hurting their credibility with their click fraud data.

And finally, the data itself. Limited’s claims tend to run extremely counter to all data released by Facebook itself and Limited has not shared the data or the services it used or page logger it created. They claim more details are forthcoming, but as we saw with the name change claim, the trustworthiness of the information could be very much in doubt.

The Bottom Line

So what are we to make of all this?

I’m taking it with a grain of salt. The accusation is strong enough and Limited does assure us all that they did a lot of data collection. If it turns out to be on the mark, then this is a really big hit for Facebook and something merchants need to consider in terms of how they go about using social media.

Also, a problem I have with Facebook’s defense is that there’s a loophole in the terminology they’re using in their statements: They say that when they detect fraud from fake accounts, they close the account. Simple right? Fraud, fake account, banhammer, done. But the loophole is that fake accounts need to be verified as fake to get closed. And skilled fraudsters will have these fake accounts looking as real as possible or simply replace it just as quickly as it gets nuked. My own experience with FB “drama” leads me to believe that on the one hand I believe Facebook is diligent in canceling the fake accounts it finds, but that the creation of fake accounts is too easy and too easy to fake properly that Facebook may not be affecting the fraud as much as it claims.

Still, I am very disconcerted by the name change issue as it’s pretty obvious to anyone who uses Facebook that it’s not Facebook’s fault you can’t have the name McDonald’s because McDonald’s already has the name.

In conclusion, I would say Facebook Ads are still right where I thought they were before I read these news articles. The huge push into social media is indeed a very powerful marketing tool that many merchants should embrace and utilize to their own benefit. But it’s a refined and subtle tool. It’s not something you just throw money at and expect clicks to turn to profits for your business. Host Merchant Services has found using Facebook ads increased our following quite a bit, but didn’t give us the targeted following of users that we really wanted. In short, we felt we got a lot of bots.

Part of that was our own inexperience with the tools available — though many video and webinar assistances later from Sandberg and Facebook we know how to use the tools much more effectively — and part of it was the Facebook culture itself. Businesses don’t always fit smoothly into the community. Facebook is far more casual and social so a business to business entity like our company, no matter how tech savvy we are, runs into some obstacles on Facebook. Finding the right people to send the ads to is difficult because our target audience isn’t as neatly confined by the tools Facebook provides — for example we found more success with the interest of “tacos” than we did for “business owners.” The more professional community of LinkedIn or the far more expansive twitterverse has ended up being a bit more successful for us.

I feel this might be part of what Limited was running into. I think there is indeed a substantial presence of fake accounts and bots on Facebook. But I also think that Limited’s target market, because of what they do as a business, isn’t exactly something folks on FB are hot to talk about and link-share. What is the hook that people on FB, already too distracted by pithy quotes and vaguebooking activities of their close knit group of friends, to talk about some business’ offer on stuff one of their affiliates can sell?

The TLDR version? Yeah, Facebook ads have a lot of bots and no Facebook can’t catch em all like Pokemons. But 80%? That number seems a tad high. And Social Media advertising is still a very valid and strong marketing tool for business owners.