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I've been up to my armpits talking about Facebook for most of this month, and maybe because I'm unusually dense, just realized that Facebook is a new kind of dot-com. By this I mean its revenue and profit are based on a series of false beliefs.

Unlike the first dot-coms, which failed, Facebook does have revenue and profit, but just like them it has been built on a stack of false assumptions that I think -- if they actually had thought through -- would have had advertisers and investors questioning whether Facebook was worth US$1 million let alone $100 billion.

I'll walk through why I think Facebook is a fraud, and I'll close with my product of the week: what may be the best cellphone deal on the planet.

Foundation of Fraud

A fraud is a wrongful or criminal deception intended to result in financial or personal gain. Now the "personal gain" part is a given; the initial Facebook investors, banking underwriters, and Mark Zuckerberg in particular made out like bandits -- maybe literally -- from the IPO.

Of course, the rank and file who massively bought Facebook stock at $42 and watched it crater over hours and days to $32 -- where it is as I write this -- didn't do quite as well. Losing money can be evidence of a fraud, because there needs to be a financial transfer between the folks who are allegedly committing the crime and the victims. For those who invested in Facebook, the "victim" title likely has a lot of resonance.

So out of the gate we have two elements we need to prove a fraud: Someone made a ton of money at the expense of someone else. But the third critical element is whether the buyers were misled. Let's get to that.

How Many Facebook Users Are There?

The number that is officially tossed out is 1 billion users, and there are 1 billion people who in some way come into contact with Facebook. But the implied assumption is that this 1 billion is connected to making a profit, and there lies the rub. However, the person being misled, which makes this interesting, isn't the investor -- it is the advertiser.

Stop for a moment. Name one ad you have ever seen on Facebook? Just one. Now if you can, and most I've spoken with can't, name one time you have actually bought something based on that ad. I've bought things after seeing Internet ads, TV ads, magazine ads -- but I'll bet even if you remember seeing a Facebook ad, you haven't ever bought anything based on it.

Now let's back up one more step. How often do you really go to Facebook as opposed to interface with it using a social networking application or aggregator on your smartphone, tablet or PC? If you are like me, this is almost never. I touch Facebook most of the time from my smartphone, Tweetdeck or Seesmic (a really great posting tool, by the way). So even if Facebook had full page ads that were 100 percent effective, I'd almost never see them.

The numbers I've seen suggest there are really only about 250 million people who actually go to Facebook and can see ads. The number of people who actually do see them is probably less than a tenth of that -- we've learned to tune ads out, and Facebook's are very subtle -- and of that fewer than 25 million, just a tiny number convert.

This suggests that advertisers are massively overpaying for Facebook advertising, and General Motors is one of the few companies that have figured this out. In fact, there are some interesting things that come up when you search "Facebook ad fraud."

So, a tiny fraction of the 1 billion people Facebook talks about actually see advertising and use it, and I'll bet confirmation will emerge shortly that Facebook knows this. Given that GM caught on, I'll bet a large number of the existing investors, along with Mark Zuckerberg and Morgan Stanley, know this as well.

There was a well-researched study last year that clearly indicated that Facebook was worth a fraction of the $100 billion the company was pushing. Apparently, too few of us read it -- but I'll bet Facebook folks did.

Insult to Injury

Now, it isn't just that people aren't consuming the ads -- there is another false belief out there. It is that given Facebook knows a ton about you, it should be able to present ads you are interested in. I just posted pictures of my new car last night; I also post on tech things I'm writing about. Now let's look at the ads I'm getting.

Top of the list is a special from AT&T U-verse. Great -- that might work, except AT&T U-verse isn't offered in my area, and Facebook sure as heck has my address. This is followed by an offer for a crappy refurbed AT&T phone. Really, they think someone who reviews tech products would be in the market for a crappy refurbed phone?

Here are some of the others: There is a gout study for folks who have gout (I don't); there is a service to meet older women (think my wife would object to my using it); and a Men in Black ad that gives me a chance to get a sneak peek at The Amazing Spider-Man. Wait, what?

Not a single one is a car offer, and there is one tech ad (refurbished phones), but it isn't the kind of tech that I'd be likely to buy. In short, Facebook isn't actually using any information that apparently everyone else sees to serve up more successful ads.

Is Facebook a Corporation?

Facebook is marketed as a corporation, but it uses a unique format that lets Zuckerberg exclusively control the company. In short, it isn't really a corporation as we would think of it; it is more like a limited partnership in which the limited -- and virtually powerless -- investors are represented by a powerless board.

I would think a structure like that would need to be fully understood by investors, because they should fully understand the risks of having a 28-year-old-billionaire in charge without real oversight before investing.

We did get a warning when Zuckerberg used investor money to buy Instagram, a tiny company, for $1 billion, as if it were out of his own pocket -- no corporate oversight or board involvement.

Facebook is presented as a public corporation, but in structure the controls that are typically around a CEO don't seem to exist. That would suggest folks didn't invest in a well-managed company; they invested in a 28-year-old who makes billion-dollar impulse buys.

Wrapping Up: Facebook Fraud

The dot-com market was based largely on the fact that a ton of folks got excited about the Internet and believed, thanks largely to Netscape, that it was a gold mine. Turned out it was fool's gold, and even Netscape no longer exists.

Now, more than a decade later, Facebook has discovered and renamed that same mine -- but even though it has now convinced advertisers that this is real gold, it is no more real now than it was then. The ad value that founds this company's revenue simply isn't there. Yes, advertisers are paying money, but the value they think they are getting isn't there any more than it was in the dot-com years.

Facebook's CEO has apparently always thought that users were stupid -- not exactly the word he used. Just as apparently, he has translated that belief into a ton of cash, because we weren't able to figure out quickly enough there really wasn't a fire under all that smoke. I have a feeling that is changing, and that we'll soon find that Facebook knew it was selling fool's gold and not the real stuff.

In the end, had investors made money, I doubt much of this would initially matter -- but Zuckerberg got too greedy, and he and his friends made all the money while other investors lost it. It looks like a fraud, it smells like a fraud, and we'll have a ton of folks now working to prove it was a fraud.

This is where Zuckerberg's control could come back to haunt him, because I expect these folks will use it to drill right through the corporate veil and nail his personal estate. Given what he seems to think of us, I can't help but think that will be poetic justice.

I'm reminded of the famous quotation from President George Bush "Fool Me Once etc." We may not all be the brightest bulbs in the box, but that doesn't mean we are pushovers either. I think Zuckerberg's going to learn the Bernie Madoff lesson -- that taking advantage of trust has a very high cost at the CEO level.

Product of the Week: Straight Talk

Every once in a while, I just accidently run into something that sounds too good to be true but isn't. I was chatting with Cyrus Farivar over at Ars Technica on how prepaid data plans were becoming more popular in the U.S. than the postpaid plans we currently use. The reason is that folks are just getting tired of paying $90-plus a month for every phone, and prepaid plans are much more affordable.

But he had recently run into a prepaid unlimited plan from a company called Straight Talk that uses AT&T's network that is pretty impressive. For a $45-a-month domestic or $60-a-month international plan, you can get unlimited everything. They also have a $30 a month 30 MB plan, but that isn't enough data.

You can't even get unlimited plans on AT&T anymore, and Straight Talk uses its network, which suggests this might not last forever here either. You can also buy the national plan for a year -- prepay it -- and get what amount to a free month. Walmart markets this, or you can go to its Web page. There is no contract -- no refunds either, though.

If you buy unlocked phones anyway or own your own phone, this is one hell of a program. You can buy phones from Straight Talk, but realize they are basically unsubsidized, so you might as well shop for the unlocked phone you want. You'll need something that works with AT&T's network, but most European phones do, and that means you can get an unlocked phone from Europe. I'll be using the unique Nvidia Tegra-based HTC One that does tethering. You can have a phone that almost no one else in the U.S. has.

So, if you know what you are doing, you can get both exclusivity and a very cheap price. Think about how much money you'll save if you give one of these plans to your kids.

The forums do suggest that if you are using 5-6 GBs a month or more, Straight Talk will likely throttle you. This is a prepay program, so you pay up front -- not at the end of the month -- so this isn't quite as good as it might seem. Remember, it is using the over-capacity AT&T network. Still, given the savings, I'm making Straight Talk my product of the week.

Rob Enderle is a TechNewsWorld columnist and the principal analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.

