Sifting through Facebook's S1 filing, DealBook's Andrew Ross Sorkin has discovered a semantic error, the social network does not have 483 million active users, but rather, more accurately, boasts 483 engaged users. "According to the company, a user is considered active if he or she 'took an action to share content or activity with his or her Facebook friends or connections via a third-party Web site that is integrated with Facebook,'" he writes, taking offense at Facebook considering pressing a "like" button as "active." Sorkin believes he has exposed Facebook for misleading potential investors (and the American public) into believing that the site isn't as popular or valuable as the social network would like. But really the slight linguistic difference doesn't mean much for Facebook's worth and is just that: word choice.
Facebook includes those who click the "Like" button on third party sites as well as all those Spotify frictionless sharing types in its definition of active. These users aren't exactly active. "Facebook appears to be using the term 'active' as a euphemism for 'engaged," continues Sorkin. Active means on the site, engaged means sharing without heading to the site. And from a money perspective, these types of Facebook use don't have the same ad benefits, argues Sorkin, pointing to this nugget from Barry Ritholtz, the chief executive and director for equity research for Fusion IQ.
If they click a ‘like’ button but do not go to Facebook that day, they cannot be marketed to, they do not see any advertising, they cannot be sold any goods or services. All they did was take advantage of FB’s extensive infrastructure to tell their FB friends (who may or may not see what they did) that they liked something online. Period.
True. Using that definition Facebook does not have 483 million active users. But, it does have 483 million people off of which it can make money tracking their activity and wall postings. Sorkin even admits this. "All of those 'Likes' help Facebook create a treasure trove of data that should make its ability to target advertising to its users all the more valuable," he writes. Our active bunch might be subject to Facebook's display ads and sponsored stories, but the engaged ones are informing Facebook which ads we might like. TechCrunch's Eric Eldon would even call the latter group more valuable than site visitors. "Likes are actually quite valuable in and of themselves, because Facebook can use them to target ads, and provide the data to developers so they can build products that use Facebook to customize user experiences," he writes.
This article is from the archive of our partner The Wire.