META Meta Platforms Inc

By Jeff Horwitz 

Facebook Inc. employees were aware that the company was overestimating how many people advertisers could reach, according to an amended complaint filed this week in a nearly two-year-old lawsuit accusing the company of misrepresenting that data.

"This is a lawsuit waiting to happen," a Facebook product manager wrote to colleagues in October 2018, regarding the company's alleged overstatements, according to the amended complaint filed Thursday. The emails were produced as part of the discovery process in the lawsuit, which is seeking class-action status and was originally filed by a small-business owner in federal court in San Francisco in 2018.

"These allegations are without merit and we will defend ourselves vigorously," a spokesperson for Facebook said in a statement.

The company has previously said the estimates were never meant to be precise guarantees and couldn't plausibly have harmed customers.

Facebook defines the "potential reach" to advertisers as an estimate of an ad's target audience. According to the amended lawsuit, Facebook's potential reach among the 18- to 34-year-old demographic in every state exceeded the actual population of those 18- to 34-years-old.

This isn't the first time Facebook has been accused of inflating metrics relied upon by advertisers. In 2016, the company disclosed that it had overestimated viewing time for video ads. Advertisers sued after the disclosure, and Facebook later settled that lawsuit, saying it made an error in calculating its metrics and denying the other allegations.

According to the amended lawsuit, Facebook first learned about concerns that it was misleading customers about how many people could see their ads in 2015 but did nothing about it. The complaint says Facebook held at least four meetings in early 2018 to discuss the alleged reach inflation but didn't provide further details.

In the 2018 email, the product manager likened the alleged overstatement to the 2016 revelation that Facebook's video viewership statistics were erroneously inflated.

Other employees shared the product manager's concern, according to the amended lawsuit. "My question lately is: How long can we get away with the reach overestimation?" one employee wrote, according to the Thursday filing.

Some sections of the complaint are redacted, including descriptions of emails written and actions taken allegedly by Chief Operating Officer Sheryl Sandberg and other executives.

The alleged potential audience errors wouldn't directly affect what Facebook's customers paid for ads because they were a measurement of how many people could potentially see an ad, not whether actual users viewed or clicked on it. But Brian Wieser, a former Pivotal Research analyst who noted the apparent overstatements in how many U.S. residents Facebook claimed advertisers could reach in a 2017 research note, said the size of the audience reachable on a platform is a meaningful metric to advertisers.

A higher potential reach "makes you relatively more attractive compared to another media owner," said Mr. Wieser, now president of global business intelligence at advertising conglomerate Group M.

According to the amended lawsuit, Facebook internally acknowledged that the inflated numbers were "due to duplicate and fake accounts." But rather than cleaning up the metric, the company allegedly created talking points attributing the apparent mismatch to people traveling, according to the suit.

In March 2019, Facebook announced that it was changing how it measures potential reach to exclude users who were active on the platform but were not shown ads in the past month. The company also has added caveats to its explanation of its potential reach metric, saying it "isn't intended to align with third-party calculations or population census data."

According to the amended lawsuit, that fix was only partial, and the metric still doesn't correspond to the possible audience of real people who might see an ad.

Write to Jeff Horwitz at Jeff.Horwitz@wsj.com

(END) Dow Jones Newswires

March 21, 2020 00:13 ET (04:13 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.