In May 2015, Snapchat cofounder Evan Spiegel sat onstage at a tech event and said his app was "approaching" 100 million daily active users in developed markets.
He was wrong — or, well, he exaggerated. In June 2015, Snapchat averaged 89 million daily active users overall, per Snap's S-1 filing. Headlines at that time said otherwise.
Spiegel, in the midst of getting grilled by reporters Walt Mossberg and Kara Swisher, was answering the same question posed to every tech company: How are your numbers?
Silicon Valley was built on metrics: users, time spent, pictures uploaded, etc. These numbers made even young startups look like they could conquer the world and make billions of dollars along the way.
And they can be gamed. Young and hungry techies have often been counseled to do whatever they must to achieve success. Fake it 'til you make it.
Spiegel isn't the first person to inflate his company's numbers, and he won't be the last. Find a big tech company — Facebook, Twitter, Uber, Airbnb — and you'll inevitably find some story of how they had an "oops, that number isn't quite right" moment somewhere along the way.
The ruse is starting to wear thin.
The numbers game
Snapchat in particular has been under fire for its metrics from a former employee who is claiming the company did more than miscalculate or gently massage its numbers.
Anthony Pompliano is claiming outright fraud.
"I have proof," Pompliano told Mashable, speaking for the first time since filing a lawsuit against Snap. "And they continue to attempt to silence me by pushing this case into arbitration, out of the public eye, but I’m not going anywhere, and they may have made disappearing photos famous, but they cannot make facts disappear."
Tech companies thrive or die by metrics. Investors could look at a balance sheet and evaluate the profit and revenue of a company, but that doesn't work as well for Silicon Valley startups that launch without a direct profit model. Instead, they present a variety of user numbers, many of which can be gamed with the magic of "growth hacking."
Growth hacking is a ubiquitous dark art in tech. Companies routinely employ a variety of tricks and strategies to boost their numbers. Some are reasonable but annoying. Others can toe a serious ethical line. For example, Twitter has been known to email inactive users, pushing them to sign in.
Tech companies are emboldened by the fact that there are no real requirements on what companies share or which metrics to use. Facebook has the most users, but when people try to compare other platforms to the social media giant, it's not easy. Twitter only shares monthly active users, not daily ones. Snapchat only shares daily, not monthly.
With many tech companies staying private for longer, they also get to selectively release their numbers. Even when companies start raising money and maybe go public, they still don't reveal everything — to many people, that secrecy and inaccuracies come at a cost. Tech is littered with examples, but here's a few from the major players:
Sept. 2016: Facebook overestimated video views, misleading advertisers who purchase video time based on that metric for two years
Jan. 2017: Uber paid a $20 million fine after its software exaggerated how much its drivers could earn and downplayed the cost of car financing.
Aug. 2017: Google issued refunds for ads with fake web traffic.
Oct. 2017: Twitter admitted it overcounted its user numbers over three years.
Calculated risk
Companies do have some reasons for what numbers they share.
"People choose the number that they think best represents their business, and that doesn't always make it easy to draw comparisons," said Jeremy Liew, a venture capitalist at Lightspeed Venture Partners who was the first invest in Snapchat.
Liew noted how Snapchat, as a messaging app, invigorated the trend of sharing daily active users. Another one of the company's investments, daily trivia app HQ, has spurred a recognition to minute active users. Of course, it's not all organic. For HQ, money is a big motivation for smartphone owners' attention, and HQ uses push notifications to make sure people sign on for the game.
Not everything a company does in regards to numbers necessarily means its "bad actor" behavior. Tech companies hire data experts to evaluate metrics and enact strategies on how to grow them.
"Early days you really want to look at retention and stickiness. It’s very easy to fall in this trap. They call it a ring of fire. You can have one user on day 1, 4, 8, 16, but you might be leaving behind user one," said Jason Schissel, a data scientist at Facebook who has also worked at Snap and LinkedIn.
The tricks of the trade are controversial even in Silicon Valley. Spiegel at one point publicly derided growth hacking. On his first quarterly earnings call with investors, he responded to an analyst's question on growth hacking and his app's push notifications with, "Yeah, so I think there are plenty of examples online [laughs] if you want to go for a Google."
And yet:
Tweet may have been deleted
For the case of Spiegel touting 100 million daily active users, that wasn't an app-related trick but instead a clear overstatement by a CEO with the platform of a stage.
"When I got there, there were multiple data sources with numbers that did not match," Pompliano told Mashable.
Two former employees at Snapchat confirmed to Mashable that the 100-million milestone was expressed in meetings by executives before it was really reached.
Snapchat denies, however, that it engaged in fraud. Shortly after the filing, Snap's attorneys called Pompliano a "disgruntled employee" who was "fired for poor performance."
Pompliano says he has evidence; he also has another man in his court. Carson Block, a short-seller and founder of investment firm Muddy Waters, became interested in Snap and investigated Pompliano and his claims after his suit was filed. Block first gained notoriety for alleging fraudulent accounting in publicly traded Chinese companies.
As a publicly traded company, Snap has to release its financials. Those — like $443 million in net losses over the third quarter of 2017 — can be deciphered. Metrics? Those are tougher.
"These metrics, there’s no basis where you can reconcile. I think it puts us in a dangerous area," Block said.
There are no rules requiring companies to share further breakdowns of daily active users. But those numbers could be leaked, as The Daily Beast proved last week.
Grading your own homework
Regardless of what happens in his case, Pompliano is not alone in his call for companies like Snap to be questioned, audited, and potentially regulated.
"It's like having the ability to grade your own homework," said Bob Liodice, Association of National Advertisers CEO. He was speaking about how, in September 2016, Facebook had been caught miscounting video views.
Months later, Facebook agreed to be audited by the Media Rating Council (MRC), the media industry's measurement watchdog. More than a year in, the auditing process is ongoing.
Facebook has revealed numerous other metrics problems since.
"This isn’t like we put a stamp of approval, and they pay us, and we walk away. This involves thousands of hours of testing," said George Ivie, CEO and executive director of MRC. "They have to open [the systems] up completely to us. We can’t audit it without precise detail."
Facebook, Google, and Twitter have each agreed to an audit. Snap has had conversations.
Facebook, Google, and Twitter have each agreed to an audit by the MRC, meaning they've opened up their advertising systems to be tested for authenticity. It's something some advertisers had been asking for years but had not been agreed upon until the situation became downright embarrassing. Snap has had conversations with the MRC but has not committed to one, Ivie told Mashable.
These tech platforms aren't the only ones dealing with ad fraud. There's a number of fake internet traffic schemes pushed by publishers, ad agencies, and ad tech networks.
For private and public investors, there are rules against fraud. There's also a stark difference between a bad actor who comes forward with problems and one that continues to hide them.
What comes next
Do all these errors really matter? For Facebook, investors still admire its 2 billion-plus monthly active users and growing user base. Meanwhile, investors fixate on Twitter's slowing user growth year over year, so even its error of potentially 2 million didn't reflect much.
Any errors do call into question what else could be wrong.
Errors "show sloppiness in the management team. Why weren’t you precise about it? If you were loosey-goosey about that, what else were you loosey-goosey about?" said Venky Ganesan, managing director at Menlo Ventures.
Silicon Valley hasn't been forced to clean up its act just yet, but change could be coming.
Back in the early 1960s, the U.S. Congress asked the media industry to self-regulate around measurement due to a "quiz show scandal," where advertisers alleged a show's ratings were rigged. The MRC was born and is now a team of seven people. Still, the audit of its advertising metrics doesn't include everything, and platforms like Snap haven't agreed to an audit — yet.
More recently, tech companies have caught the attention of the U.S. government. The general counsels of Facebook, Google, and Twitter have all testified last year in front of lawmakers in the wake of Russian propaganda spreading on their platforms during the 2016 presidential election.
"You've created these platforms, and now they're being misused," said Sen. Dianne Feinstein during the hearing with Senate Intelligence Committee. "You have to be the ones to do something about it, or we will."
Sen. Feinstein and the other lawmakers focused the warnings on political ads and propaganda but also spotlighted the strength of these systems beyond those areas. As Sen. John Kennedy said, "Your power scares me."
Indeed, tech giants have influenced how we individually behave and where our money goes. Facebook and Google accounted for about 63 percent of digital ad revenue in the U.S. this year, according to eMarketer.
These companies have clearly profited, but at what cost? Not every number is externally fact-checked, although the MRC audit will lead to some scale of confidence when it comes to advertising.
Still, not every number publicly shared is done so with the best intentions. But the companies keep growing, and the founders keep sharing.
And the numbers usually keep going up.
Topics Facebook Snapchat Advertising
