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The Meta meltdown marks a turning point

One of the things that emerged from leaked internal documents last year was how much Facebook had fretted for years about younger users drifting away. It was only this week that its parent, Meta, finally had to announce that the social media group’s active user base stagnated in the most recent quarter — triggering the largest ever one-day loss in market value, more than $220bn, for any company. But this is about more than teens preferring TikTok. It is a sign that one of the iconic businesses of the Big Tech era is increasingly hemmed in by competitive and regulatory pressures — and the prospects for its chosen route to break free from these shackles are unclear.

The first threat is indeed TikTok. While it is unclear if privacy scandals have dented older users’ enthusiasm for Facebook, it is painfully evident that teens are turning elsewhere. It is the nature of social media for users to chase the Next Big Thing. What Facebook did in the past to stay ahead of the curve was either buy or copy the emerging competitive threats, or sometimes both. It acquired Instagram in 2012, and WhatsApp in 2014 — though it already had its own Facebook Messenger app. It blunted the challenge from Snapchat by launching its rival Stories.

But the acquisition route has been largely closed by antitrust pressure; UK regulators have ordered it to unwind even its fairly tiny $315mn deal in 2020 to buy Giphy, a gifs business. And its efforts to clone TikTok with its Reels app have yet to pay off. Founder Mark Zuckerberg said last year Facebook was “retooling” to serve younger users better, putting Reels at the heart of the user experience. But he has acknowledged older users might be less comfortable with this — and advertising placed in the video feed is less lucrative than ads in its news feed or Stories.

Ad revenues are also being squeezed by a second threat: from Apple. Changes to the phonemaker’s operating system — requiring users’ permission to gather tracking data, which many are refusing — make it harder for Facebook to target advertising. It revealed on Wednesday that this could knock $10bn off its revenues this year.

Alphabet’s Google, though, reported an unexpected surge in advertising — thanks, perhaps, to its continued access to its own search data. Facebook must rue its failed efforts to develop a mobile phone, and become more of a gateway to the internet. Google has a “killer” app and an operating system while Apple has an operating system and its own devices, which are foundations of today’s internet.

This is where the metaverse comes in. After scouting for other growth avenues, including its global digital currency project that has finally been abandoned after bumping into regulatory barriers, Zuckerberg is making a big bet on his vision of an avatar-filled “immersive” internet. If he can make this work, it holds the prospect of making Meta a gateway to the next iteration of the internet — and Goldman Sachs has suggested the metaverse is an $8tn opportunity, in terms of revenue and monetisation. For now, when or if the project will pay off for Meta is unclear. Its division devoted to the metaverse and virtual reality made a $3.3bn operating loss in the fourth quarter.

A feature of today’s tech space is the need for constant reinvention. Zuckerberg has done better than most at seeing three steps ahead. His faith in the metaverse may one day prove right. Unlike Google or Apple, however, where existing businesses are still providing robust growth, the slowing of Meta’s momentum leaves investors relying on its chair and founder to pull off a very big reinvention indeed.

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