Why Meta Is in Trouble
Facebook has nowhere to grow anymore
In its 18 years of existence, the Facebook platform has recorded its first ever drop in users. The company revealed this week that its daily active users fell from about 1.93 billion to 1.929 billion -- under a million, and, percentage wise, a tiny amount. The number of users across all of Meta's platforms -- including Instagram and WhatsApp -- actually grew slightly, from 2.81 billion daily to 2.82 billion.
Still, the Facebook drop was hugely important as it signaled that the platform's breakneck growth is over -- at least, for now. By comparison, Facebook grew from 1 billion monthly active users in 2012 to 2 billion in 2017.
Facebook has defined itself by growth. Facebook executive Vice President Andrew Bosworth wrote in a leaked 2016 memo that the company's sole aim was to achieve growth, even if that growth had downsides, like "a terrorist attack." "We do have great products but we still wouldn’t be half our size without pushing the envelope on growth," he wrote. "Nothing makes Facebook as valuable as having your friends on it, and no product decisions have gotten as many friends on as the ones made in growth."
New York Times journalist and co-author of "An Ugly Truth," Sheera Frenkel told Public Sphere last year, "I think the problem Facebook has is that it is shown such astronomical growth year after year, the moment they start to slow down even a tiny bit, it's read by some of their investors as panic."
That's exactly what happened: the company's stock fell by over 20 percent in one night, the biggest single day price drop in the history of the stock market. Meta CEO Mark Zuckerberg lost an estimated $29 billion overnight.
Facebook's growth actually has plateaued for years in Europe and the United States. It made up for that by growing in users across the developing world, in places such as Africa and Latin America. Now that growth too, has plateaued.
That growth led to all sorts of problems with content moderation -- the company had virtually no employees who spoke languages in places with civil strife and mass killings like Myanmar and Ethiopia, where violent hate speech went viral on the platform. The company has responded to this criticism by devoting resources to foreign languages. But the problem is still massive. According to testimony that Facebook whistleblower Frances Haugen gave before Congress, the company spends about 87 percent of its budget on misinformation for English-language sources, whereas 13 percent is for all other languages combined. (Over half of Facebook users speak a non-English language.)
The company's stalling growth may be reassuring to some critics, who see the user drop as a sign that the company will go away on its own, like AOL or MySpace. However, with a dropping stock price and stagnating user base, that may mean that the company will be less willing to experiment with changing its algorithms from engagement-based ranking systems that promote divisive content. When growth stalled in the United States and Europe in 2018, the company moved to engagement-based ranking to keep users on the platform for longer periods of time.
Despite competition from other social networks like TikTok, Facebook is also nowhere near going the way of MySpace. It still has billions of daily users and Instagram and WhatsApp are growing. The company's stock is roughly what it was in July 2020 -- and most people thought it was a sound business then.
Yet, Meta faces obstacles to further growth. In the past, it was able to buy off competition, like Instagram in 2011 and WhatsApp in 2014. That strategy would prove difficult now given that the company is under antitrust scrutiny at the federal and state levels. The company also said it has lost $10 billion in 2021 due to ad-tracking changes on the Apple iPhone, allowing users to opt out of letting apps like Facebook track their phone usage, and in turn, personalize their ads. iPhone users tend to be wealthier than Android users, and Apple's emphasis on privacy is a big dent to Facebook's lucrative advertising business. Despite the platform's popularity in the developing world, Facebook's growth is hampered by limited Internet bandwidth on smartphones in regions such as Africa.
What comes next? The company rebranded itself as Meta and has made a hyped push towards the "metaverse" -- a system of virtual reality and augmented reality. That bet hasn't paid off yet. Despite the doubling in "metaverse" revenue each year since 2019, the company has also spent massively on it. It lost about $10 billion net on the "metaverse" in 2021. Its hardware division that builds the Oculus Quest headset lost over $3 billion in the fourth quarter of 2021, despite pulling in $877 million in revenue. While the future of the metaverse is uncertain, it seems unlikely that Meta's signature Facebook platform will be able to grow significantly -- and will remain a platform with a core conflict between its pursuit of profits and the social costs from its algorithms.
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