As their company's stock continued to slump, Facebook executives had to face not one but two other pieces of tough news this week.
Just as an angry third-party developer blasted Facebook's allegedly high-handed negotiation tactics in an open letter to CEO Mark Zuckerberg, the company also reported that about 83 million of its user accounts are duplicates or have fake names.
"Any one thing isn't so bad but the cumulative effect is terrible," said Zeus Kerravala, an analyst with ZK Research. "Why would any investor put more money into them? This was certainly a strange situation and it makes you wonder how many skeletons might be out there."
The trouble started Wednesday when startup entrepreneur Dalton Caldwell, co-founder of such sites as iMeem and PicPlz, posted on his blog an open letter to Zuckerberg in which he accused Facebook of bullying practices.
Caldwell said he demoed an iOS app that he had built on the Facebook platform. He said he was looking for support for his upcoming product launch.
But that's not what he got, according to his letter.
Instead, Facebook execs told him his app competes with the new Facebook App Center, and they said they wanted to buy his company.
"I quickly became skeptical and explained that I was not interested in an acqui-hire," Caldwell wrote. "I had zero interest in seeing my product shut down and joining Facebook. I told your team I would rather reboot my company than go down that route."
Facebook did not respond to a request for comment.
Although that was another embarrassing hit to Facebook, Dan Olds, an analyst at Gabriel Consulting Group, said he's not surprised to hear that Facebook is using a strong business strategy.
"To me, it sounds like both Caldwell and Facebook are working on very similar services and, understandably, Facebook is going to pursue their version of it rather than bless and support Caldwell's version," he said. "While it's not a good result for Caldwell, it's how business works. Sometimes you win. Sometimes you lose."
Google, a major Facebook rival, was quick to exploit the situation.
In a Google+ comment early Thursday, Vic Gundotra, Google's senior vice president of social business, said Google is working to avoid "screwing over developers."
Taking a swing at Facebook in the wake of Caldwell's letter, Gundotra focused on his decision to not open the Google+ API.
"I get a lot of heat for not releasing a full write API for Google+," he wrote. "When we open an API, we want developers to feel confident that the innovations they build are going to be long lasting. Releasing an API, and then later changing the rules of the game isn't fun for anyone, especially developers who've spent their life's energies building on the platform."
On the heels of Caldwell's letter and Gundotra's post, was a Facebook statement to the U.S. Securities and Exchange Commission in which the company estimated that 83 million of its user accounts are not legitimate.
In a 10-Q filing with the SEC, Facebook reported that of its 955 million monthly active users, approximately 83 million are fake or are duplicates.
The company reported that people with more than one Facebook account, which is against the site's policies, amount to 4.8% of the social network's monthly active users. It also noted that "false accounts," which include misclassified accounts and accounts set up for, say, spamming, represent 3.9% of the monthly active users.
That adds up to 8.7% of Facebook's user base -- or 83 million users.
Olds said every social network has a certain percentage of abandoned accounts, fake users, and accounts that exist only to game the system. It's unavoidable.
"But even though this is a fact of life, it's an embarrassing fact of life for social network providers -- and one that they'd rather not talk about," he added. "What's troubling is when advertisers begin wondering how many of their clicks are from real users and how many might be from fake accounts."
Olds pointed out that now that these numbers are out in the open, Facebook needs to openly address what it's going to do about the situation.
Kerravala said between these issues and the company's slumping stock price, which slid below $20 per share Thursday afternoon, Facebook has a lot of public relations work to do.
"I think all of this has taken much of the shine off Facebook," he added.
