This story has been updated to include more details on Snap’s and Amazon’s earnings and an interview with Wharton Professor Ron Berman.
With a single earnings report and a disastrous conference call, Mark Zuckerberg wiped out $240 billion in value from his company. Meta’s was the largest one-day loss by a U.S. company ever, and the ripple effects were closer to tsunamis throughout Silicon Valley. The list of tech losers reeling from the Meta Platforms (formerly Facebook) reckoning is long and full of familiar names: Spotify was 16 percent lower; Twitter was down about 6 percent; and even companies that were relatively safe, such as Apple and Microsoft, saw hundreds of billions of dollars erased from their market value. Every percentage point here is a huge sum of money gone, at least for shareholders. Why did this happen? Who is responsible? Has the bell tolled for Big Tech?
To answer that last question first, yes and no. Many of Facebook’s problems are of Zuckerberg’s own making. It wasn’t even six months ago that the billionaire tech developer decided not only to change the company’s name but to go even further — to hijack its reason for existing and create a whole new digital reality, the metaverse, amid one of the most damaging, long-lasting scandals of the company’s existence right here on planet Earth. (More on that later.) Meta spent more than $9 billion to build this metaverse last year, it was revealed in securities filings. This is an astronomical sum, especially since Zuckerberg has tried to warn investors that it could be as late as 2031 before he really gets it right. It’s the kind of leap of faith that, ironically, tends to get a more sympathetic hearing from smaller, scrappier companies, such as Magic Leap, that have far less money and resources at their disposal — except that the money comes from venture capitalists who can handle companies going bust, not the public stock markets that fuel people’s retirements.
But there are other, structural reasons for Meta’s rout, and the weight of those changes has suddenly registered with the rest of the world. The first is Tim Cook, the head of Apple, the largest company in the world. Last year, Apple allowed its users to opt out of getting followed around the internet by advertisers, kneecapping Facebook’s whole business model. Facebook is one of the avatars of surveillance capitalism, an economy that diminishes privacy in order to make a company more money. By last summer, consumers had decided they didn’t want to be tracked, with only 25 percent saying, Yeah, sure, follow me around. Now not only does Facebook get almost all of its money from advertising, but people who have iPhones — and Apple products more generally — are a much more appealing audience for advertisers since they tend to have more money than Android users. During the last three months of 2021, when inflation picked up and advertisers started to pull back on spending, Apple’s move hit Facebook hard and signaled to the rest of the world that online advertising will be going through a hard time.
How hard is anyone’s guess, but it won’t be overnight. As a result of Apple’s ad-tracker-blocking feature “and other privacy initiatives that are imminent,” Eric Benjamin Seufert wrote on the tech blog Mobile Dev Memo, “Meta’s advertising infrastructure must be replaced completely.” Basically, Seufert argued, Meta executives have to change their entire advertising system — the whole reason the company was considered so bulletproof just a few years ago. But it’s not as if advertising or surveillance capitalism are going away: Other Silicon Valley giants such as Google and Amazon have reported big-bang earnings because advertising was actually so good.
In order to get a better understanding of how online advertising works, I talked about it with Ron Berman, a professor of marketing at Wharton, the University of Pennsylvania’s elite business school. He said the online-advertising business is essentially split into two camps: those like Google and Amazon, whose sites you visit to tell them what you want, and places like Facebook and Instagram, where people visit to be entertained and the companies use the data they have on you to inform advertisers. For “the advertisers selling on Amazon, everything is inside the platform,” Berman said. “If Facebook was able to have a lot of people sell through Facebook on the Facebook app, a lot of this problem would be a nonissue.” So when Cook allowed Apple users to block ad tracking, he was essentially siding with the Googles of the world, at least as far as advertising is concerned. This is why Snap, which was closer to Facebook’s advertising model, lost a quarter of its market value before it reported its fourth-quarter earnings — and then rocketed up more than 50 percent after hours when its earnings were released. Why? The company’s top financial officer said Snap’s ads business “began to recover from the impact of the iOS platform changes quicker than we anticipated,” according to The Wall Street Journal. Essentially, it became less like Facebook. How Zuckerberg plans on doing that is still a major unknown.
Amid all this turmoil, there’s still the competition. Those massive, damning leaks by whistleblower Frances Haugen detailed how Instagram was harming the mental health of girls just as Zuckerberg’s company was pushing to roll out a version of its photo app for children. The reason for this focus is Facebook’s users were skewing older and older. Kids didn’t really use Facebook and were leaving Instagram for Snapchat and TikTok. Facebook needed an in with the next generation, and this was it. The strategy continues. Zuckerberg told his employees Thursday that they should focus on short-form video products — I’m assuming he means TikTok clones — and that they face “unprecedented levels of competition,” according to a Bloomberg report. Berman sees other problems too. Since Facebook’s demographics are skewing older and people are venturing out more as the Omicron wave starts to subside, he thinks it might be harder to lure people back — which will make it even harder to get advertisers to spend more money there. “I’m a skeptic because their customers are spending less and less time there and providing less and less useful information to Facebook,” he said.
The problem for Zuckerberg is his style as a CEO is not about coming up with brilliant or creative new things. It’s about doing those things better than his competitors, at least from a business perspective. He bought Instagram for $1 billion in 2012; two years later, he purchased WhatsApp for $16 billion. Along the way, his properties have copied TikTok (“Reels”) and Clubhouse (“Live Audio Rooms”) and set up a version of Craigslist (“Facebook Marketplace”). The success has varied, but clearly the playbook is no longer working. Even if Facebook could buy its way out — and with $39 billion in revenue last year, Lord knows that wouldn’t be an issue — it’s facing an impasse in Washington, D.C., where one of the few bipartisan positions is regulating Big Tech. The companies’ lobbyists are getting no traction, and the Federal Trade Commission has been giving them no quarter — in fact, it’s a very real possibility that Meta could be forcibly broken up. (This has already started in small ways outside the U.S., as when the U.K. blocked an acquisition of Giphy, though that’s on appeal). Does this all mean it’s the end of days for Facebook? Probably not. Even if Zuckerberg fails spectacularly in getting people to go along with his metaverse and never recovers the revenue levels from online advertising, he has already ingrained his company deeply into the internet. After all, there are still people who use AOL, right?