{"id":177651,"date":"2019-07-23T19:17:00","date_gmt":"2019-07-24T00:17:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2019\/07\/23\/mark-madoff-zuckerberg\/"},"modified":"2019-07-23T19:17:00","modified_gmt":"2019-07-24T00:17:00","slug":"mark-madoff-zuckerberg","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2019\/07\/23\/mark-madoff-zuckerberg\/","title":{"rendered":"Mark Madoff Zuckerberg"},"content":{"rendered":"
Today’s must read is a cogent case that Facebook has been generating fake users to keep its ad revenues growing<\/a>.<\/div>\n

Given Facebook’s culture, and Zuckerberg’s complete lack of ethics, I am inclined to believe that this is an accurate characterization of how the social media giant hits its numbers:<\/p>\n

Facebook now has a market capitalization approaching $600 billion, making it nominally one of the most valuable companies on earth. It\u2019s a true business miracle: a company that was out of users in 2012 managed to find a wellspring of nearly infinite and sustained growth that has lasted it, so far, half of the way through 2019. <\/p>\n

So what is that magical ingredient, that secret sauce, that \u201cgenius\u201d trade secret, that turned an over-funded money-losing startup into one of America\u2019s greatest business success stories? It\u2019s one that Bernie Madoff would recognize instantly: fraud, in the form of fake accounts. <\/p>\n

Old money goes out, and new money comes in to replace it. That\u2019s how a traditional Ponzi scheme works. Madoff kept his going for decades, managing to attain the rank of Chairman of the NASDAQ while he was at it. <\/p>\n

Zuckerberg\u2019s version is slightly different, but only slightly: old users leave after getting bored, disgusted and distrustful, and new users come in to replace them. Except that as Mark\u2019s friend and lieutenant, Sam Lessin told us, the \u201cnew users\u201d part of the equation was already getting to be a problem in 2012. On October 26, Lessin, wrote, \u201cwe are running out of humans (and have run-out of valuable humans from an advertiser perspective).\u201d At the time, it was far from clear that Facebook even had a viable business model, and according to Frontline<\/i>, Sheryl Sandberg was panicking due to the company\u2019s poor revenue numbers. <\/p>\n

To balance it out and keep \u201cgrowth\u201d on the rise, all Facebook had to do was turn a blind eye. And did it ever.<\/p>\n

In Singer v. Facebook, Inc<\/a>.\u2014a lawsuit filed in the Northern District of California alleging that Facebook has been telling advertisers that it can \u201creach\u201d more people than actually exist in basically every major metropolitan area\u2014the plaintiffs quote former Facebook employees, understandably identified only as Confidential Witnesses, as stating that Facebook\u2019s \u201cPotential Reach\u201d statistic was a \u201cmade-up PR number\u201d and \u201cfluff.\u201d Also, that \u201cthose who were responsible for ensuring the accuracy \u2018did not give a shit.\u2019\u201d Another individual, \u201ca former Operations Contractor with Facebook, stated that Facebook was not concerned with stopping duplicate or fake accounts.\u201d <\/p>\n

\u2026\u2026\u2026 <\/p>\n

Yet signs that Mark\u2019s fake account problem is no different than Madoff\u2019s fake account statement problem are everywhere. Google Trends shows worldwide \u201cFacebook\u201d queries down 80% from their November 2012 peak. (Instagram doesn\u2019t even come close to making up for the loss.) Mobile metrics measuring use of the Facebook mobile app are down. <\/p>\n

And the company\u2019s own disclosures about fake accounts stand out mostly for their internal inconsistency\u2014one set of numbers, measured in percentages, is disclosed to the SEC, while another, with absolute figures, appears on its \u201ctransparency portal.\u201d While they reveal a problem escalating at an alarming rate and are constantly being revised upward\u2014Facebook claims that false accounts are at 5% and duplicate accounts at 11%, up from 1% and 6% respectively in Q2 2017\u2014they don\u2019t measure quite the same things, and are impossible to reconcile<\/a>. At the end of 2017, Facebook decided to stop releasing those percentages on a quarterly basis, opting for an annual basis instead. Out of sight, out of mind. <\/p>\n

\u2026\u2026\u2026 <\/p>\n

What Facebook does say is this<\/a>: its measurements, the ones subject to \u201csignificant judgment,\u201d are taken from an undisclosed \u201climited sample of accounts.\u201d How limited? That doesn\u2019t matter, because \u201c[w]e believe fake accounts are measured correctly within the limitations to our measurement systems\u201d and \u201creporting fake accounts\u2026may be a bad way to look at things.\u201d <\/p>\n

And how many fake accounts did Facebook report being created in Q2 2019? Only 2.2 billion, with a \u201cB,\u201d which is approximately the same as the number of active users Facebook would like us to believe that it has. <\/p>\n

A comprehensive look back at Facebook\u2019s disclosures suggests that of the company\u2019s 12 billion total accounts ever created, about 10 billion are fake. And as many as 1 billion are probably active<\/a>, if not more. (Facebook says that this estimate is \u201cnot based on any facts,\u201d but much like the false statistics<\/a> it provided to advertisers on video viewership, that too is a lie.) <\/p>\n

So, fake accounts may be a bad way to look at things, as Facebook suggests\u2014or they may be the key to the largest corporate fraud in history. <\/p>\n

Advertisers pay Facebook on the assumption that the people viewing and clicking their ads are real. But that\u2019s often not the case. Facebook has absolutely no incentive to solve the problem, it\u2019s already in court over it, and its former employees are talking. From Mark\u2019s vantage point, it\u2019s raining free money. All he has to do to get advertisers to spend is convince the world that Facebook is huge and it\u2019s only getting huger. <\/p>\n

\u2026\u2026\u2026 <\/p>\n

But I\u2019m not wrong. Facebook is a real product, but like Enron, it\u2019s also a scam, now the largest corporate scandal ever. It won\u2019t release its data about the 2016 election, about fake accounts, or about anything material\u2014and because Mark knows it\u2019s a scam, he won\u2019t agree to testify before the British parliament in a way that could require him to actually answer any substantive questions, as I did in June<\/a>. And because Facebook is also a component of the S&P 500, countless people have an incentive to maintain the status quo. <\/p>\n

So should we break up the tech companies and Facebook in particular? It\u2019s already a campaign issue for the next presidential election. Elizabeth Warren says yes. Beto O\u2019Rourke wants \u201cstronger regulations.\u201d Kamala Harris would rather talk about privacy. Everyone else\u2014even Donald Trump\u2014generally agrees that something needs to be done. Yet the unspoken issue at the center of it all remains: Mark is running a Ponzi scheme, but Wall Street, Congress, the Federal Trade Commission, the think tanks, and their associates haven\u2019t figured it out. <\/p>\n

\u2026\u2026\u2026<\/p>\n

The biggest problem with treating Facebook as a monopoly, as opposed to the byproduct of what Jesse Eisenger calls \u201cThe Chickensh%$ Club,\u201d is that it wrongly affirms Mark\u2019s infallibility and fails to see through him and his scheme, let alone the reality that he\u2019s not even in control anymore because no one is. <\/p>\n

Would it have helped to separate Madoff Securities LLC into one company per floor, or split up Enron by division? Probably not, but talking about it is Facebook\u2019s dream come true. Because the question we should really be discussing is \u201cHow many years should Mark Zuckerberg and Sheryl Sandberg ultimately serve in prison?\u201d<\/span><\/p><\/blockquote>\n

If this is true, and I do<\/b> find the argument compelling, I would pay money to watch his being frog marched out of his Menlo Park headquarters in handcuffs. <\/div>\n","protected":false},"excerpt":{"rendered":"

Today’s must read is a cogent case that Facebook has been generating fake users to keep its ad revenues growing. Given Facebook’s culture, and Zuckerberg’s complete lack of ethics, I am inclined to believe that this is an accurate characterization of how the social media giant hits its numbers: Facebook now has a market capitalization …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[368,575,464,598,533],"class_list":["post-177651","post","type-post","status-publish","format-standard","hentry","tag-corruption","tag-fraud","tag-good-writing","tag-social-media","tag-software"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/177651"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=177651"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/177651\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=177651"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=177651"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=177651"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}