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Facebook is full of phonies: Facebook

Facebook headquarters

Credits: REUTERS/Beck Diefenbach

QMI AGENCY

Facebook estimates that 83 million of its user profiles are fake - a fact that could hurt its bottom line.
In company filings published this week, the social networking giant said 8.7% of its 955 million user profiles may not be legitimate.

Of those, it believes 4.8% are duplicate profiles, which the company described as "an account that a user maintains in addition to his or her principal account."

About 1.5% are "user-misclassified," such as personal profiles for businesses, groups or pets. Folks are welcome to set up Facebook pages for these types of things, but user profiles are for people.

And 1.5% are classified as "undesirable," which means users are breaking Faceook's terms of service. Most often, they are spammers.

This kind of activity is bad for Facebook, which earned 83% of its revenue from third-party advertisers in the first six months of 2012.

If advertisers believe the "likes" on their products are from fake users, they could decide to abandon Facebook.
Last week, Limited Press released a report that claims its software analysis found 80% of clicks on its advertisements within Facebook had come from fake users.

"If we are unable to maintain and increase our user base and user engagement, our revenue, financial results, and future growth potential may be adversely affected," Facebook said.

"We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business."

Facebook also expressed concern that new advertising laws, fluctuations in the price of online ads, companies using free services like Facebook pages instead of buying ad space, and ad-blocking technology could hurt the company financially.

The company also worries that after years of rapid growth, its user base will stagnate.

"We anticipate that our active user growth rate will decline over time as the size of our active user base increases, and as we achieve higher market penetration rates," the company wrote.

"To the extent our active user growth rate slows, our business performance will become increasingly dependent on our ability to increase levels of user engagement and monetization in current and new markets."

That means Facebook needs positive press and enthusiastic users.

"If people do not perceive our products to be useful, reliable, and trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their engagement."

It noted that many other social networking companies saw a sudden decline in active users after a brief period of growth. There's no guarantee that won't happen to Facebook too, the company filings warned.

"A decrease in user retention, growth, or engagement could render Facebook less attractive to developers and advertisers, which may have a material and adverse impact on our revenue, business, financial condition, and results of operations."

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