Should You Be Concerned About the Latest Facebook Scandal?

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On July 30, a custom online store creator called Limited Run effectively accused Facebook (NAS: FB) of extortion, and came just short of accusing the social network of fraud.

In a post that has since been deleted, Limited Run, known at the time as "Limited Pressing," said that it had trouble verifying the source of roughly 80% of the clicks on its Facebook ads. Separately, the company claimed a rep said Facebook would need a $2,000 per month ad spending commitment in order to change its name.

Limited Run has since taken its business to Twitter, where it says it won't be "shaken down." Facebook, for its part, has issued a statement to News.com, but it does little to answer accusations:


"We're currently investigating their claims. For their issue with the Page name change, there seems to be some sort of miscommunication. We do not charge Pages to have their names changed. Our team is reaching out about this now." [Emphasis added.]

A miscommunication? Uh-oh.

I see two problems here. First, someone took the time to try and log Facebook click traffic and found the results troubling. Google (NAS: GOOG) has spent years fighting so-called "click fraud" with increasingly sophisticated tools. salesforce.com (NYS: CRM) and Jive Software (NAS: JIVE) have built entire businesses out of measuring the impact of clicks, tweets, and posts. The social network has to be at least as good as these peers at demonstrating value, but if Limited Run is correct, Facebook lacks many of the tools advertisers need.

Second, while I don't doubt that there was a "miscommunication" over the terms for changing a page's name, the accusation comes at an awful time. Facebook just reported zero profit gains on a 32% year-over-year jump in revenue in the second quarter. Results like that make it too easy for skeptics to believe a rep would pressure a customer into buying more ad space.

Who's right? I think there's a grain of truth in what both Facebook and Limited Run are saying, and that's troubling to me as one who still believes in the social network.

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The article Should You Be Concerned About the Latest Facebook Scandal? originally appeared on Fool.com.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google and salesforce.com at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool owns shares of salesforce.com, Google, and Facebook. Motley Fool newsletter services have recommended buying shares of salesforce.com, Facebook, and Google. Motley Fool newsletter services have recommended shorting salesforce.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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