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Is Meta’s party over?

Is Meta’s party over?

Last week, Facebook turned 18. It should have been a celebration for the world’s biggest social network

Here’s what you need to know this week:

  • Affairs of state: Meta loses $230 billion as users left Facebook

State-by-state:

  • Google surged ahead in advertising
  • Apple kept its TV play quiet
  • Microsoft’s CEO touted gaming as the future
  • Amazon had a good harvest
  • Tencent rolled back some censorship

Affairs of state: Is Meta’s party over?

Whatever outrage Facebook has generated in recent years, among the media or among policymakers, it could always rely on blockbuster growth. As recently as last summer, Facebook posted quarterly profits that were double the previous year. 

But as it transitions into adulthood, there are signs that the party may be over. Last week investors wiped more than $230 billion from the market valuation of its owner, Meta, as younger users left to spend more time on shinier new rivals like TikTok. Meta’s shares fell more than 25 per cent: the biggest one-day drop in value of any company in Wall Street history. 

It’s not appropriate to brand Facebook a “failed state”, given that only months ago it was posting blockbuster results. Instagram and WhatsApp are still growing. But there’s no sugar-coating last week’s results. They were troubling.  

For the first time in its history, Facebook’s daily user numbers fell – by one million – to 1.929 billion over three months. Facebook usage in the US and Canada has been declining since last year; but until now those losses were comfortably offset by the platform’s growth in the rest of the world. Over the past quarter, however, Facebook lost users in Africa and Latin America too. That’s not a good trend.

Three things are playing on Zuckerberg’s mind: 

  • Privacy changes. Apple’s ad tracking ban on iPhones has severely reduced the data Meta can obtain to target ads to iPhone users. The changes have cost Meta $10 billion so far – and seem to have hit it harder than other platforms. Snap has developed a workaround – part of the reason it posted strong results last week. Experts are wondering: why can’t Facebook do the same?
  • TikTok. TikTok is “one of the most effective competitors we have ever faced,” Zuckerberg said last week. One analyst called it an “existential threat”. More 12-17 year olds in the US now use TikTok than Instagram. Facebook is countering with Reels, its version of short-form video, but it will be hard to regain the “cool factor” necessary to drive network effects. 
  • Advertising. Meta’s share of US digital ad revenue declined for the first time in 2021, from 23.8 per cent to 24.9 per cent. Even worse, its share of “direct to consumer” marketing (brands that sell products to consumers online rather than through other retailers) fell from 42.5 per cent in 2021 to 27.8 per cent this year. This deep-dive from the Information has more details about why this is happening. 

The big question now: is this the start of a hollowing out that could leave Facebook as irrelevant as MySpace (remember?). Or a bump in the road towards a grand Zuckerbergian vision for metaverse domination? (Facebook changed its name to Meta last August: wasn’t this a sign that internally the company had accepted that Facebook is no longer the future?)

We spoke to three analysts to understand the different sides of the argument: 

  • Pessimistic. Marc Hadwick, research director for TechMarketView, highlighted that younger users were opting for rivals and that advertisers were cutting back on spending because of other issues, like supply-chain tangles. On the Metaverse, he says: “The reality is that this remains a big commercial bet with little substance currently in play.” Reality Labs, the division responsible for Meta’s metaverse-related initiatives, lost $10.2 billion last year.
  • Mixed. Shahid Amanullah, of tech consulting firm Frost & Sullivan, said Meta’s long-term success depends on the effectiveness of its shift to the Metaverse. “Pay close attention,” he says, to “who Facebook brings in to design the core functionalities of the metaverse.” The quality of these employees will determine whether Facebook’s metaverse is a long-term home, or a fad like Second Life.
  • Optimistic. Scott Liewehr, president of Digital Clarity Group, a market research firm, told us that the results were a “small blip”. Wall Street has yet to understand the potential of the metaverse, where Meta has a “much better leg-up on the competition in the longer-term”. Apple’s privacy changes have impacted Facebook, but Zuckerberg can mitigate damage by focusing more on Android products and tracking users across Meta’s own products (something that the Apple ban doesn’t affect). 

It’s easy to look at Facebook and think: you’re the past. This might prove, ultimately, to be correct. But Facebook isn’t Meta and Meta isn’t Facebook. Zuckerberg has recognised that it might be the beginning of the end for Facebook, and now he’s pouring billions of dollars into winning in the attention economy somewhere else. 

If anything, the potential for manipulation, harm and surveillance capitalism is greater in the metaverse than it is through a few square inches of phone screen. Quite separate from the question of whether Zuckerberg can pivot his empire towards a virtual world is this question: has he learnt anything about the social harms and scandals that beset Facebook; or will it be business as usual?


Google: Competitive advantage

Meta’s loss, it seems, is Google’s gain. Parent company Alphabet posted a surge in search advertising revenue last week, sending its stock price up nearly 8 per cent. Its core search business was the stand-out performer, with its revenue jumping 36 per cent from a year before to $43.3 billion. Why is Google doing well when Meta isn’t? One reason is that Google has developed AI tools allowing brands to automate their ad spending more effectively. Another is that its search advertising is less dependent on personal data collected on Apple’s devices than Meta’s. 


Apple: Broadcasting

Tim Cook doesn’t mention Apple TV+ much – perhaps because it’s a drop in the ocean of Apple’s operations. But Variety picked up one one thing Cook did tell analysts last week: that “financial decisions” don’t drive what content the streaming service buys. As Variety points out, Apple has never shared any subscriber numbers, although a recent report suggested the figure was about 20 million: tiny in comparison to Disney+ – which launched at the same time as Apple (it has about 118 million paid subscribers). Apple could change this in a heartbeat by acquiring a studio (Lionsgate, for instance). Today, it might be put off by the regulatory scrutiny such a deal would attract. But it could be a sign of what’s to come.


Microsoft: The future

The “metaverse” means very different things to different people. To some it’s just buzz, to others it is a useful term for organising tech creativity and capital. To Satya Nadella and to Mark Zuckerberg (whose ailing business needs a win) it seems to mean something like: “the future”. In an interview last week, Nadella, the CEO of Microsoft, spoke about the tech state’s recent deal to acquire game-maker, Activision Blizzard. Game-building capabilities, he said, are the basis of having “people, places, things digitised” – making the deal crucial to Microsoft’s metaverse ambitions. It seems that Zuck and Nadella are aligned in thinking that the metaverse is the next big domain in which users will engage with digital content forms; they are also now in a pitched battle over who’ll figure out how it works, and build it.


Amazon: Bumper crop

Last month, we predicted that Amazon’s Prime service was so ingrained in Western lifestyles that a price rise would only lead to higher profits. Last week Amazon’s stock enjoyed its best one-day gain since 2015 after the tech state announced a 17 per cent increase in the price of its membership scheme. Strong performance in its cloud computing division helped Amazon add about $190 billion to its market cap. The contrast with Meta’s slump prompted tech analyst Casey Newton to write on Twitter: “What if, hear me out, Facebook opened an online book store.”


Tencent: Jack’s lack of censorship

Spoiler alert: David Fincher’s cult classic Fight Club doesn’t end as “authorities thwart a plot to bomb buildings and wipe out consumer debt”. It ends with the bombs going off, and the banking skyscrapers toppling to the ground. But the altered version is exactly what Tencent Video would have had you believe until very recently. The film had been censored because “authorities are expected to come out victorious in domestic films”, writes Josh Ye, for the South China Morning Post. In the face of a backlash on social media, Tencent rolled back censorship of the film, removing the text at the end and reintroducing about 11 minutes of previously censored footage. It is not yet clear what sparked this apparent victory over party censorship – but we all know the first rule of Fight Club.


Book

Thanks for reading,

Alexi Mostrous
@AlexiMostrous

Luke Gbedemah
@LukeGbedemah