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Nov. 25, 2020, 8:21 p.m. EST

Facebook's glitch shakes advertisers' confidence

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By Alexandra Bruell

Facebook Inc. is offering millions of dollars in credits to some advertisers after discovering a glitch in a tool that tells advertisers how effective their ads may be in driving results, such as getting consumers to download an app or purchase a product.

Facebook's "conversion lift" tool overestimated some campaign results for 12 months, the company quietly told its advertisers this month. The glitch skewed data that advertisers use to decide how much money to spend with the company.

It isn't the first problem Facebook has discovered in its systems to measure advertisers' campaigns, and it is not likely to dent Facebook's ad revenue. But some ad buyers said the latest gaffe has hurt confidence in the company's metrics at a time when many businesses are navigating the pandemic by trying to cut costs and make sure their ad spending performs.

Omnicom Group Inc. media agency OMD Worldwide is looking into how the error has affected some clients' investments before accepting credits, said Florian Adamski, OMD's global chief executive.

"This is not an easy fix," he said. "It's not like, pay a couple thousand or million bucks and it's over. This goes a lot deeper and we need to find out how to rectify the damage done and make sure it doesn't happen again."

"If there is no governance or third neutral party looking at our investment tools, I can't sleep well at night and my clients can't sleep, " he added.

The issue is particularly acute for certain categories such as retail, where marketers are spending as much as 5% to 10% more on Facebook and other performance-centric advertising channels to recover business lost during the early stages of the pandemic, said the chief executive of one digital agency that spends hundred of millions of dollars advertising on Facebook every year.

"Being able to attribute where sales are coming from is hugely important right now," the executive said. "Every dollar spent has got to map back to data points and performance. If we can't map that back, it becomes more difficult to justify spending dollars when clients are trying to manage their costs as effectively as possible -- and media spend is a cost that needs to generate revenue."

Facebook's offer of credits extends to some advertisers that used the tool when the error went undetected, from August 2019 through August 2020.

"While making improvements to our measurement products, we found a technical issue that impacted some conversion lift tests," said a Facebook spokesperson in an email. "We've fixed this and are working with advertisers that have impacted studies."

At one large buying agency, the size of ad credits will be around 0.5% of affected clients' annual budgets around the time of the glitch, according to a memo that the agency sent to clients that was obtained by The Wall Street Journal.

"More so than past measurement problems with Facebook's ad platform, this error has the potential to be extremely serious," the agency wrote in the note to clients. "The fact that it led to a systematic overstatement of ad performance, combined with the yearlong duration of the error, likely misinformed media budget allocations. These misallocations came at the expense of both advertiser media efficiency and Facebook's competitors."

Facebook, which said it fixed the error in September, told advertisers about it this month, according to a memo that Facebook sent clients. The company is basing the amount of credits it is issuing to advertisers on an analysis that shows how much the error may have affected their actual investments during the period following the lift study.

Some ad buyers are also questioning the analysis Facebook is using to determine advertisers' compensation -- criticizing the tech giant for not being transparent enough in how it determined who receives ad credits and how, exactly, compensation was calculated, as well as details on steps Facebook is taking to ensure such errors don't occur again.

"This can't just be covered with a one-time compensation in credits," said OMD's Mr. Adamski. "It needs that reconciliation for every single client on how did it influence the investment decisions we made."

Marketers aren't likely to turn away from Facebook despite the incident, said Kevin Simonson, vice president of social for digital marketing agency Wpromote LLC, which spends more than $100 million a year on Facebook ads on behalf of clients.

"This particular error would impact strategy regarding what creative to use and what audiences to spend against, which could be significant to some extent, but it's not going to be significant to a degree that's going to cause any brand (in this day and age) to not do Facebook," Mr. Simonson said in an email. "It's more like to what degree."

News of the glitch was reported last week by industry publication AdExchanger.

Write to Alexandra Bruell at alexandra.bruell@wsj.com and Sahil Patel at sahil.patel@wsj.com

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