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Facebook knew for years ad reach estimates were based on ‘wrong data’ but blocked fixes over revenue impact, per court filing

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Some more internal emails Facebook really doesn’t want you to see: Turns out in 2017 COO Sheryl Sandberg had already known for years there were problems with a free ad planning tool the company offers to marketeers to display estimates of how many people campaigns running on its platform may reach, per newly unsealed court documents.

The filing also reveals that a Facebook product manager for the ‘potential reach’ tool warned the company was making revenue it “should never have” off of “wrong data”.

The unsealed documents pertain to a US class action lawsuit, filed in 2018, which alleges that Facebook deceived advertisers by knowingly including fake and duplicate accounts in ‘potential reach’ metric.

Facebook denies the claim but has acknowledged accuracy issues with the ‘potential reach’ metric as far back as 2016 — and also changed how it worked in 2019.

While the litigants have continued to accuse Facebook of continuing to misrepresent the ad reach estimate in updates to their 2018 complaint.

Redacted documents from the lawsuit, reported by the WSJ last year, included the awkward detail that a Facebook employee had asked “how long can we get away with the reach overestimation?”

But sections of the filing pertaining to Sandberg and other Facebook executives were redacted.

Newly unsealed documents from the suit — which we’ve reviewed — now reveal that in fall 2017 Sandberg “acknowledged in an internal email she had known about problems with Potential Reach for years”.

They also show Facebook repeatedly rejected internal proposals to fix the issue of fake and duplicate accounts inflating the estimates its platform showed to advertisers of the number of people who could see their ads — citing impact on revenue as a reason not to act.

In early 2018 Facebook estimated that removing duplicate accounts would cause a 10% drop in potential reach, per the unsealed filing. While Facebook management rejected an employee’s suggestion to change the language the tool showed to advertisers, declining to swap out the words “people” and “reach” for the (more accurate) term “accounts” — on the grounds that “people-based marketing was core to Facebook’s value proposition”.

The filing also reveals that a product manager for ‘potential reach’, Yaron Fidler, proposed a fix for the tool that would have decreased its numbers. His proposal was rejected by Facebook’s metrics leadership on the grounds that it would have a “significant” impact on the company’s revenue — to which Fidler responded: “It’s revenue we should have never made given the fact it’s based on wrong data.”

In 2016, when Facebook published an update on metrics — a few weeks after publicly disclosing it had been over-inflating average video view times, as it sought to regain advertiser trust in its reporting tools — the tech giant also announced a new channel for “regular information on metrics enhancements”, called Metrics FYI.

This is where it made the aforementioned fuzzy disclosure of accuracy issues with ‘potential reach’ — writing then that it was “improving our methodology for sampling and extrapolating potential audience sizes” to “help to provide a more accurate estimate for a given target audience and to better account for audiences across multiple platforms (Facebook, Instagram and Audience Network)”.

“In most cases, advertisers should expect to see less than a 10% change (increase or decrease) in the audience sizes shown in the tool,” it added at the time.

However the December 2016 blog post did not go into any detail about the nature of the accuracy problems Facebook thought needed improving — reading more like another classic slice of Facebook crisis PR.

The class action suit, meanwhile, alleges that rather than accepting internal proposals to fix the accuracy problems of ‘potential reach’, Facebook instead “developed talking points to deflect from the truth”.

The tech giant did announce some changes to the ad tool in March 2019 — when it said an advertiser’s campaign’s estimated potential reach “is now based on how many people have been shown an ad on a Facebook Product in the past 30 days who match your desired audience and placement criteria” (vs the estimates being previously based on “people who were active users in the past 30 days”).

But the litigants argue that the changes to the tool which displays an estimate to advertisers as they are beginning to create a campaign — and therefore when they’re deciding/considering whether/how much money to spend with Facebook — do not fully fix the issue of the metric not corresponding to the potential audience of people who could see the ad on Facebook.

An analyst report back in 2017 showed that Facebook’s ad platform claimed to reach millions more users among specific age groups in the U.S. than official census data indicated reside in the country.

At the time the company said the audience reach estimates “are based on a number of factors, including Facebook user behaviors, user demographics, location data from devices, and other factors”, per the WSJ, and claimed they are “not designed to match population or census estimates”. Facebook added then that it is “always working to improve our estimates”.

Asked about the latest batch of unsealed court documents pertaining to the lawsuit — including the revelation that Facebook’s COO had told staff she knew about “problems” with the ad tool “for years” as far back as fall 2017 — Facebook sent us this statement, attributed to a spokesperson: “These allegations are without merit and we will defend ourselves vigorously.”

Problems with self-reporting ad metrics have been a recurring theme for Facebook.

Last year the tech giant disclosed yet another issue on this front — saying its ‘conversion lift’ ad tool had a code error that meant it had miscalculated the number of sales derived from ad impressions for a number of advertisers.

That ‘technical problem’ with Facebook’s internal calculation of the efficacy of third parties’ ad campaigns meant advertisers saw skewed data which they may have used to determine how much to spend on its platform.

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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Tim Hortons marks two years in China with Tencent investment

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Tim Hortons, the Canadian coffee and doughnut giant, has raised a new round of funding for its Chinese venture. The investment is led by Sequoia China with participation from Tencent, its digital partner in China, and Eastern Bell Capital. The round comes two years after Tim Hortons made its foray into China’s booming coffee industry.

Tim Hortons didn’t disclose the amount of its latest fundraise but noted in a social media post that the proceeds will be used for opening more stores, building its digital infrastructure, brand presence, and more.

Tencent, the Chinese social media and entertainment behemoth, first backed the 57-year-old Canadian coffee chain last May. At the time the tie-up was seen as Tencent’s move to counter archrival Alibaba’s alliance with Starbucks to deliver coffee and help the American coffee titan go digital in China.

Tim Horton’s collaboration with the WeChat parent is in a similar vein. It has so far accumulated three million members through its WeChat mini program, a type of lightweight app that runs within the instant messenger. To appeal to young Chinese consumers, Tim Hortons opened an esports-themed cafe with Tencent, China’s biggest gaming company.

Two years into operating in China, Tim Hortons says it has reached storefront-level profitability with a footprint of 150 locations across 10 major cities. It plans to add more than 200 locations in 2021 and reach 1,500 stores nationwide in the next few years.

The dramatic rise and fall of coffee delivery startup Luckin brought the prospects of China’s coffee market to the forefront. Despite the investment frenzy around Luckin and other coffee businesses, coffee drinking still has a relatively low penetration in China compared to countries like the United States and Germany. On the other hand, coffee consumption is growing at a much faster rate of 15% in China, well above the global average of 2%, and is projected to reach 1 trillion yuan ($150 million) in 2025, according to a 2020 report by Dongxing Securities.

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Bessemer Venture Partners closes on $3.3 billion across two funds

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Another major VC firm has closed two major rounds, underscoring the long-term confidence investors continue to have for backing privately-held companies in the tech sector.

Early-stage VC firm Bessemer Venture Partners announced Thursday the close of two new funds totaling $3.3 billion that it will be using both to back early-stage startups as well as growth rounds for more mature companies.

The Redwood City-based firm closed BVP XI with $2.475 billion and BVP Century II with $825 million in total commitments.

With BVP XI, it plans to focus on early-stage companies spanning across enterprise, consumer, healthcare, and frontier technologies. 

Its Century II fund is aimed at backing growth-stage companies that Bessemer believes “will define the next century,” and will include both follow-on rounds for existing portfolio companies or investments in new ones.

BVP XI marks Bessemer’s largest fund in its 110-year history. In October 2018, the firm brought in $1.85 billion for its tenth flagship VC fund. This latest fund is its fifth consecutive billion-dollar fund, based on PitchBook data. 

Despite being founded more than 100 years ago, Bessemer didn’t actually enter the venture business until 1965. It’s known for its investments in LinkedIn, Blue Apron and many others, with a current portfolio that includes PagerDuty, Shippo, Electric and DocuSign. Exits include Twitch and Shopify, among many others.

With more money than ever before available for backing startups, the challenge now for VCs is to see how and if they can find (and invest in) whatever will define the next generation of tech. 

“As venture capitalists, we pay too much attention to pattern recognition and matching when in reality, the biggest opportunities exist where those patterns break,” the firm wrote in a blog post today. “Our job is to make perceptive bets on the future, especially those that others will dismiss and ridicule. We are fundamental optimists and strong believers in the power of innovation; our life’s work is putting our reputation, time, and money to help entrepreneurs realize a different future. They’re the ones pioneering something entirely new and obscure – a technology, a business model, a category.

In addition to announcing the new funds, Bessemer also revealed today that it’s brought on five new partners including Jeff Blackburn, who joins after a 22-year career at Amazon, alongside the promotion of existing investors Mary D’Onofrio, Mike Droesch, Tess Hatch, and Andrew Hedin.

Most recently at Amazon, Blackburn served as senior vice president of worldwide business development where he oversaw dozens of Amazon’s minority investments and more than 100 acquisitions across all business lines – including retail, Kindle, Echo, Alexa, FireTV, advertising, music, streaming audio & video, and Amazon Web Services.  

“Having been part of Amazon for more than two decades, I’m excited to begin a new chapter helping customer-focused founders build breakthrough companies,” said Blackburn in a written statement.  “I’ve known the Bessemer team for many years and have long admired their strategic vision and success backing early-stage ventures.” 

With the latest changes, Bessemer now has 21 partners and over 45 investors, advisors, and platform “team members” located in Silicon Valley, San Francisco, Seattle, New York, Boston, London, Tel Aviv, Bangalore, and Beijing. 

“At Bessemer, there’s no corner office or consensus; every partner has the choice, independently, to pen a check. This kind of accountability and autonomy means a founder is teaming up with a partner and board director who thoroughly understands your business and can respond quickly and decisively,” the firm’s blog post read.

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Daily Crunch: Twitter announces ‘Super Follow’ subscriptions

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Twitter reveals its move into paid subscriptions, Australia passes its media bargaining law and Coinbase files its S-1. This is your Daily Crunch for February 25, 2021.

The big story: Twitter announces ‘Super Follow’ subscriptions

Twitter announced its first paid product at an investor event today, showing off screenshots of a feature that will allow users to subscribe to their favorite creators in exchange for things like exclusive content, subscriber-only newsletters and a supporter badge.

The company also announced a feature called Communities, which could compete with Facebook Groups and enable Super Follow networks to interact, plus a Safety Mode for auto-blocking and muting abusive accounts. On top of all that, Twitter said it plans to double revenue by 2023.

Not announced: launch dates for any of these features.

The tech giants

After Facebook’s news flex, Australia passes bargaining code for platforms and publishers — This requires platform giants like Facebook and Google to negotiate to remunerate local news publishers for their content.

New Facebook ad campaign extols the benefits of personalized ads — The sentiments are similar to a campaign that Facebook launched last year in opposition to Apple’s upcoming App Tracking Transparency feature.

Startups, funding and venture capital

Sergey Brin’s airship aims to use world’s biggest mobile hydrogen fuel cell — The Google co-founder’s secretive airship company LTA Research and Exploration is planning to power a huge disaster relief airship with an equally record-breaking hydrogen fuel cell.

Coinbase files to go public in a key listing for the cryptocurrency category — Coinbase’s financials show a company that grew rapidly from 2019 to 2020 while also crossing the threshold into unadjusted profitability.

Boosted by the pandemic, meeting transcription service Otter.ai raises $50M — With convenient timing, Otter.ai added Zoom integration back in April 2020.

Advice and analysis from Extra Crunch

DigitalOcean’s IPO filing shows a two-class cloud market — The company intends to list on the New York Stock Exchange under the ticker symbol “DOCN.”

Pilot CEO Waseem Daher tears down his company’s $60M Series C pitch deck — For founders aiming to entice investors, the pitch deck remains the best way to communicate their startup’s progress and potential.

Five takeaways from Coinbase’s S-1 — We dig into Coinbase’s user numbers, its asset mix, its growing subscription incomes, its competitive landscape and who owns what in the company.

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

Everything else

Paramount+ will cost $4.99 per month with ads — The new streaming service launches on March 4.

Register for TC Sessions: Justice for a conversation on diversity, equity and inclusion in the startup world — This is just one week away!

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

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