Forbes India – Apple, online advertising: six reasons why Meta is in trouble


Mark Zuckerberg, CEO of Facebook, testifies before the House Financial Services Committee on Capitol Hill in Washington, October 23, 2019. The company formerly known as Facebook has experienced major turbulence as it has suffered its biggest one-day annihilation. (Pete Marovitch/The New York Times)

Meta, the company formerly known as Facebook, suffered its biggest single-day annihilation on Thursday, as its stock fell 26% and its market value fell more than $230 billion.

Its crash followed a dismal earnings report on Wednesday, when chief executive Mark Zuckerberg explained how the company was navigating a delicate transition from social media to the so-called virtual world of the metaverse. On Thursday, a company spokesperson reiterated statements from its earnings announcement and declined to comment further.

Here are six reasons why Meta is in a tough spot.

User growth has reached a ceiling.

The salad days of wild Facebook user growth are over. Even though the company on Wednesday saw modest gains in new users across its so-called family of apps — which includes Instagram, Messenger and WhatsApp — its Facebook social networking app lost around half a million users over the past month. fourth quarter compared to the previous quarter.

It’s the first such decline for the company in its 18-year history, during which time it had been virtually defined by its ability to attract more new users.

Investors are likely to consider next whether Meta’s other apps, such as Instagram, might start to peak in user growth.

Apple’s changes limit Meta.

Last spring, Apple introduced an “App Tracking Transparency” update to its mobile operating system, essentially giving iPhone owners the choice to let apps like Facebook monitor their online activities. These privacy measures have now harmed Meta’s business and will likely continue to do so.

Now that Facebook and other apps have to explicitly ask people for permission to track their behavior, many users have opted out. This means less user data for Facebook, which makes it harder to target ads – one of the company’s main ways to make money.

What’s doubly painful is that iPhone users are a far more lucrative market for Facebook advertisers than, say, Android app users. People who use iPhones to access the Internet typically spend more money on products and apps offered to them from mobile ads.

Meta said Wednesday that Apple’s changes will cost it $10 billion in revenue over the next year.

The company railed against Apple’s changes and said they were bad for small businesses that rely on social media advertising to reach customers. But Apple is unlikely to roll back its privacy changes, and Meta shareholders know it.

Google steals online ad share.

Meta’s problems have been the good fortune of its competitors.

On Wednesday, David Wehner, chief financial officer of Meta, noted that as Apple’s changes have given advertisers less visibility into user behaviors, many have started shifting their advertising budgets to other platforms. Namely Google.

On Google’s earnings call this week, the company saw record sales, particularly in its e-commerce search advertising. This is the same category that tripped up Meta in the last three months of 2021.

Unlike Meta, Google does not rely heavily on Apple for user data. Wehner said Google likely has “significantly more third-party data for measurement and optimization purposes” than Meta’s advertising platform.

Wehner also pointed out that Google’s deal with Apple was the default search engine for Apple’s Safari browser. This means Google’s search ads tend to show up in more places, collecting more data that can be useful to advertisers. This is a huge problem for Meta in the long run, especially if more advertisers switch to Google search ads.

TikTok and Reels present a conundrum.

For more than a year, Zuckerberg has been pointing out what a formidable enemy TikTok is. The China-backed app has grown to over a billion users thanks to its highly shareable and weirdly addictive short video posts. And it’s in fierce competition with Meta’s Instagram for eyeballs and attention.

Meta has cloned TikTok with a video product feature called Instagram Reels. Zuckerberg said Wednesday that Reels, which features prominently in users’ Instagram feeds, is currently the primary engagement driver in the app.

The problem is that while Reels attracts users, it doesn’t make money as effectively as other Instagram features like stories and the main feed. That’s because it’s slower to make money from video ads because people tend to skip them. This means that the more Instagram pushes people to use Reels, the less money it can make for those users.

Spending on the metaverse is crazy.

Zuckerberg believes so much that the next generation of the internet is the metaverse — a still-fuzzy, theoretical concept that involves people moving through different virtual and augmented reality worlds — that he’s willing to spend big on it.

So big that spending was over $10 billion last year. Zuckerberg expects to spend even more in the future.

However, there is no evidence that the bet will pay off.

The specter of antitrust hovers.

The threat of Washington regulators coming to Zuckerberg’s company is a headache that just won’t go away.

Meta faces multiple investigations, including from a newly aggressive Federal Trade Commission and several state attorneys general, into whether it acted anticompetitively. Lawmakers have also coalesced around congressional efforts to pass antitrust bills.

Zuckerberg argued that Meta is not a social media monopoly. He furiously pointed to what he calls “unprecedented levels of competition”, including from TikTok, Apple, Google and future adversaries.

But the threat of antitrust action has made it harder for Meta to navigate new social media trends.

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©2019 New York Times News Service

Marilyn J. Hernandez