Brief:

• Facebook began offering credits to advertisers after finding a bug in its software that helps marketers to measure the effectiveness of their ads in driving app downloads or product purchases, The Wall Street Journal reported, citing people familiar with the matter. The social media giant's conversion lift tool showed erroneous results for 12 months, it revealed to advertisers this month.
• The software glitch is especially concerning for some categories of marketers such as retailers that are spending heavily on social media advertising to help recover sales they lost during the pandemic's onset that led to many store closures. Those marketers increased their spending on direct-to-consumer (DTC) ad platforms as much as 5% to 10%, the CEO of a digital agency whose clients buy hundreds of millions of dollars a year in Facebook ads told the Journal.
• Facebook's offer of ad credits covers some advertisers that had used the conversion lift tool when the software bug was undetected, from August 2019 to August 2020. Facebook fixed the glitch in September and this month told advertisers about it in a memo that explained the ad credits are based on its analysis of how the bug affected their spending, according to the Journal. AdExchanger first reported on the software glitch two weeks ago.

Insight:

Facebook's disclosure of a software bug is worrisome for marketers that spend heavily on the social network to drive app downloads or direct sales of products. While the company's efforts to offer make-goods are admirable, the error exposes Facebook to criticism that it isn't transparent enough in helping marketers understand how their ad campaigns perform on its platform. With marketers looking to boost the efficiency of their media spending as budgets get squeezed during the pandemic, metrics like conversions have greater weight in helping to determine business outcomes.

The ad credits equal about 0.5% of the yearly budgets of affected clients at one large media agency that was notified about the error, according to a memo cited by the Journal. The memo described the glitch as having the potential to be "extremely serious" in affecting media budget allocations among various platforms, including Facebook's rivals. While the bug may have had significant effects on marketers that increased their Facebook spending based on artificially skewed metrics, it's unlikely they will abandon the platform altogether given the company's ability to reach highly targeted audiences via vast troves of consumer data.

For Facebook, the ad credits appear unlikely to affect its revenue growth, given that the company continues to thrive after revealing past errors in its ad metrics. Three years ago, Facebook offered credits to reimburse advertisers billed for mobile video ads that played out of view. The company discovered two measurement errors during a regular review of its metrics and notified advertisers of the refunds.

Similarly, Facebook last year reached a proposed settlement in a lawsuit brought by smaller advertisers claiming they were overcharged for video ads. Facebook in 2016 apologized for the error that had overestimated the average duration of video ad viewing times. While the latest error in ad metrics is embarrassing for Facebook, the company can work to overcome marketers' concerns by making its systems more transparent.