Facebook suddenly banned this start-up from advertising, and its founder thinks Facebook is trying to squash a competitor

Key Points
  • Facebook banned ads from Bloom, an online identity management service with a focus on credit scoring, saying that it was offering deceptive financial services products.
  • Bloom does not sell any financial products, although people can use its service to apply for loans.
  • Bloom's founder thinks Facebook is actually upset because Bloom competes with Facebook's own identity service, Facebook Login.
Facebook CEO Mark Zuckerberg is seen through reflective glass as he sits in the office of Senator Bill Nelson (D-FL) while he waits for a meeting in the Hart Senate Office Building in Washington, U.S., April 9, 2018.
Leah Millis | Reuters

Jesse Leimgruber is the co-founder of Bloom, a start-up building technology to help people keep control over their personal data as they sign into various online services and apps.

He and his team did what many start-ups do to accelerate growth: they advertised on Facebook.

The company spent hundreds of thousands of dollars on these ads, drawing users to the company's online identity protection service. The tactic worked — until Facebook suddenly banned the company's ads earlier this month.

"They just banned it," Leimgruber said. "This was a huge killer for us."

Facebook told Bloom it was part of a crackdown on ads for deceptive financial products and services related to cryptocurrency.

Bloom does not sell any financial products or services and has nothing to do with cryptocurrency. However, because it uses blockchain technology, Bloom's web site has some words that are often used on cryptocurrency sites, like "Ethereum" and "blockchain." It also conducted a sale of tokens, used by developers to build apps, in 2017, prior to when the crypto ad ban kicked in.

Facebook suggests that these words or similar confusion triggered the ban.

"While we loosened the policy this summer, it remains restrictive," a Facebook spokeswoman said. "We will continue to listen to feedback, look at how well this policy works and continue to study this technology so that, if necessary, we can revise it over time."

But Leimgruber thinks the sudden nature of the ban is suspicious, given that Bloom had been advertising throughout Facebook's ban on cryptocurrency-related ads, which was first imposed in January. He believes the real reason for the ban is because Bloom competes with Facebook's own identity management platform, Facebook Login (formerly Facebook Connect).

The dispute highlights Facebook's struggle to clean up its service without overreacting. Facebook has been purging pages, accounts and advertisers in a clean-up effort after more than a year of scandals involving misleading content and the misuse of personal data.

As part of the crackdown, Facebook has removed lots of misleading content that deserved to be banned, including dozens of accounts and pages for spreading propaganda in Myanmar, and hundreds of accounts and pages that were spamming users on Facebook by artificially inflating engagement on their posts to drive traffic to their websites.

But there has also been collateral damage. Facebook has blocked dozens of advertisements related to the LGBT community for being political. In January, Facebook blocked all ads related to cryptocurrency before modifying its policy in June to allow some ads as long as they weren't about initial coin offerings (ICOs).

'Take back control'

Bloom is the latest organization claiming to be caught in the crossfire.

Bloom offers a service called BloomID that can be used to sign into apps and online services, with controls over precisely which data the user wants to share.

Among other functions, BloomID can also be used to apply for loans from services such as BMW Financial Services and American Express Middle East. Bloom receives affiliate fees when users sign up for a loan, as well as management fees from integrators. According to Leimgruber, this business model is similar to that of start-ups like NerdWallet and Credit Karma.

Starting in Aug. 2017, Bloom spent a total of $300,000 on Facebook ads, Leimgruber said. The ads were accepted by Facebook — and resulted in September being Bloom's best growth month to date — until Oct. 3.

That was when Facebook sent Bloom a note suggesting the ads ran afoul of Facebook's ban on misleading cryptocurrency ads.

"We don't allow ads that promote financial products and services, such as binary options and initial coin offerings that are frequently associated with misleading or deceptive promotional practices," read the message from Facebook.

BloomID is not a financial product or service and has nothing to do with cryptocurrency.

Bloom has talked about building a better alternative to credit-scoring services like Equifax — its original pitch was "to facilitate on-demand, secure, and global access to credit services." The company uses blockchain technology, which is also the base technology for cryptocurrency, and its website has mentions of words often related to cryptocurrency, including "cryptographically," "Ethereum" and "blockchain." In 2017, the company sold tokens, which are used by developers to create Bloom-enabled apps, but it is no longer selling or advertising them on Facebook, and consumers are not required to possess them to use the BloomID service.

Leimgruber theorizes that Facebook was looking for an excuse to ban BloomID's ads because it competes with Facebook's own sign-in product, Facebook Login (formerly part of a broader service called Facebook Connect). He believes this is unfair, as Facebook has no rules against advertising competing products, Leimgruber says.

"There's no rule in their ad guidelines that says you can't compete with them," Leimgruber said. "Since BMW and other financial institutions are using Bloom as a replacement for Facebook Connect, it's a threat to them."

Facebook has also formed its own internal blockchain group, which is led by former Facebook Messenger boss and PayPal President David Marcus. Although that group is operating secretly, it's possible that the company is planning something similar to what Bloom is doing.

In addition, some of the ads were a little cheeky, which might have drawn Facebook's attention.

"You're being targeted with this ad because the entire history of you is being mined and sold," read one of Bloom's Facebook ads. "But now you can take back control of your data with BloomID."

A sample of Bloom ads that were banned from Facebook's services. 

But Bloom had a legitimate reason for the language: It was running these ads to reach privacy-conscious users who were growing aware of how Facebook used their data. Bloom saw major upticks in sign-ups after Facebook scandals, such as the Cambridge Analytica incident in March and the security breach disclosed in September that affected 30 million accounts.

"They probably didn't like that the ads were really pointed and that we ramped up spend after the Facebook hack. They were directed at 'take back the data' in the days after the Facebook hack. I'm sure they were very sensitive to this. I think they just needed a way to justify banning us," speculates Leimgruber.

Facebook did not acknowledge any of these factors in its reasons for the ban. Facebook told CNBC, "We have not shut down their ad account but merely disapproved their ads that promote the cryptocurrency related product. Our policies continue to restrict cryptocurrency-related advertising, as well as prohibit initial coin offerings (ICOs) and binary options as part of our ongoing effort to improve the integrity and security of our ads. But, as noted, we will continue to study, receive feedback, and revise over time."

Leimgruber said Bloom has appealed the ban. It has also tried to run ads that had been previously approved, ads that have no mentions of blockchain and ads that link to landing pages that have no mentions of cryptocurrency-related terms. Nothing has worked.

"They just do not get approved," he said. "They just get blocked."

He added, "This is the kind of stuff that puts us on the map, and then to have the very company we're trying to protect consumers from flex their might and ban us is very unusual."

Update: This story was updated to reflect the fact that Bloom conducted a sale of tokens in 2017. The sale was completed before Facebook instituted the crypto advertising ban,. The tokens are used by developers to build apps that work with the Bloom platform, and consumers are not required to possess them to use BloomID. Bloom no longer sells them and did not advertise them in 2018.

The Facebook fallout could pave the way for blockchain technology
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