Even Mark Zuckerberg admits the opposition is formidable. “I understand that a lot of people might disagree with this investment,” the meta boss said when he spoke Wednesday night the figures for the third quarter introduced. But in a few decades, people would realize that Meta’s work was of historical importance.
By that he means his bet on the Metaverse, those virtual worlds in which people should play, celebrate and work together. Zuckerberg talks so much about the future because the present looks bleak for Facebook’s parent company, Meta. Almost all indicators are pointing down, sales and profits are falling for the second time in a row. Zuckerberg sounds almost pleading when he says: “I believe that those who have patience and invest in us will be rewarded in the end.”
Many people who hold shares in Meta seem to see things differently. In the after-hours trading, the group lost around a fifth of its value within two hours on Wednesday, and the price has fallen by more than 70 percent compared to last year. The stock is now at the level of 2016. Back then, Barack Obama was US President, Facebook was cool and Tiktok hadn’t even been invented yet. In short: Meta is in the deepest crisis of its history. There are four main reasons for the crash.
1. Doubts about the Metaverse grow
Zuckerberg has staked the fate of his company on a vision that will at best become a reality in the distant future – if ever. He is convinced that the Metaverse will replace the mobile Internet. That’s why he renamed Facebook Meta a year ago and invested tens of billions of dollars. By 2030, a billion people are expected to be in the Metaverse.
The bet is risky. So far, virtual reality is a huge losing proposition, and it takes a lot of imagination to envision how that could change. Many investors lack this imagination. Zuckerberg holds special stock that grants him tenfold voting rights. This means that he can make all important decisions alone if necessary and against the will of all other shareholders.
So far, it looks like Zuckerberg is sticking to his course. Earlier in the week, an influential investor in a open letterthat Meta needs to focus on the here and now: laying off tens of thousands of employees, cutting costs, and massively slashing Metaverse spending. Meta does the opposite. The loss that the Reality Labs division is making will “grow significantly” in the coming year, says CFO Dave Wehner.
2. Facebook and Instagram need to change radically
In order to go from a social media operator to a Metaverse corporation, Meta must reinvent itself. That’s not the only metamorphosis Zuckerberg is seeking. At the same time, he would like to fundamentally rebuild the two platforms Facebook and Instagram. The model is Tiktok. Young people in particular are switching to the competition from China in droves, which is why Zuckerberg relies on a proven recipe: he copies what others have been successful with.
The first is the format of the content. Tiktok is based on an endless stream of portrait format videos that can be edited on mobile and recomposed creatively. Meta calls its Tiktok clone Reels and anchors the format prominently in Facebook and Instagram. On the other hand, the logic according to which new content is recommended is changing. So far, Metas platforms have relied heavily on the so-called social graph. You primarily see posts from people you follow. At Tiktok, this network of friends plays a much smaller role. New content is constantly being suggested, users just don’t want to get bored.
So far, the change in strategy has not paid off. Many people want the old Instagram back, a simple and elegant photo platform with no frills. Prominent influencers protest against the restructuring, while Tiktok is growing rapidly while Meta’s platforms are stagnating. But Zuckerberg can’t afford that. To build the Metaverse, he relies on Facebook and Instagram to keep making billions.
3. Apple restricts data collection
Last year, Apple introduced a small pop-up that had a big impact on Meta. Developers must ask permission on iPhones and iPads before tracking users across apps and websites. With only a fraction agreeing, the amount of data that corporations like Meta can collect is shrinking. Mobile advertising is therefore significantly less effective, and ad sellers such as YouTube, Snapchat and Twitter are suffering.
Facebook and Instagram were hit the hardest. Apple’s actions have already cost Meta tens of billions. At the same time, Apple is building gradually expanded his own advertising business. The group wants to reduce its dependence on the iPhone and Sell ads yourself. For Meta that has to bend to the rules of Apple’s ecosystem, this is bad news.
4. Companies reduce their advertising budgets
The corona pandemic played into the hands of many tech companies, after all people were spending even more time in apps and on digital platforms. However, Silicon Valley is also suffering from the Russian war of aggression against Ukraine: inflation is rising, economic growth is falling and companies are reducing their advertising budgets. Advertisers used to flock to Meta in droves, but now the ads department has to struggle.
Back in July, Zuckerberg spoke of “one of the worst downturns we’ve seen in recent history.” Meta’s employees are also likely to feel the consequences. Realistically, there are a number of people in the company who shouldn’t be here Zuckerberg said at the time. He hopes that some will go voluntarily when the pressure increases. “Turning up the heat,” Zuckerberg calls it. You could translate it as making hell hot.