In 2003, Mark Zuckerberg — then a second-year student at Harvard — wrote the software for a site called Facemash. He also hacked into the university’s security network, copying student ID images used by the dormitories and pasting them into his site code. Visitors of Facemash were encouraged to compare two student photos side-by-side and then vote on which one was “hotter”.
Three days after its launch, Facemash was shut down by Harvard executives. After dodging charges of breach of security, violating individual privacy and narrowly avoiding expulsion, Zuckerberg would launch a new website to connect with his peers — TheFacebook. His road to riches was set — but so would be his controversy-laden trail.
Fast-forward down this path and you might already know that in 2022, Meta (the social media giant’s rebranded name) has been bestowed with what appears to be a rocky start. From meteoric stock drops to a failed cryptocurrency launch, things haven’t been looking peachy for Zuckerberg’s hoped-for metaverse empire.
Is this just a blip in the radar for Meta, or are we starting to see Zuckerberg’s resolve finally crack? Is it possible that Meta might not be cut out for Web3? Let’s take a look at some of the things that have happened since the start of the year, before diving into what this might mean for the tech giant’s future.
A historic decrease in market capitalisation
Last week, Meta Platforms Inc. faced a historic drop in their stock price — losing a total of $31 billion USD in market value — the largest ever recorded one-day loss in history for a US-based company. Since then, its stock has continued to decline — allowing the company to see the loss of roughly one-third of its value in less than a week.
This has also brought Mark Zuckerberg’s net worth down from $120.6 billion to about $92 billion, effectively pushing him outside of the list of the world’s top 10 wealthiest people.
This change was reportedly due to a massive decline in Facebook’s user base, with the social media giant’s fourth-quarter results falling short of analysts’ expectations. Since May 2020, this is the first time that Meta has been worth less than $600 billion. Moreover, this has given other tech giants a major boost in value — such as NVIDIA, which has now closed at $627 billion.
To top things off, recent spending via the Reality Labs Division — the company’s business unit focused on developing greater XR initiatives for the metaverse — has also caused Meta to experience a loss of more than $10 billion from its first entry points into Web3. What has this money been spent on? According to the company’s CFO, $4.2 billion of lost funds have been spent on “employee costs, research and development and costs of items sold.”
Jacob Furst, director and professor at DePaul University’s College of Computing and Digital Media, poses a great question: “For a technology platform that has, since it was created, been growing — when you reach a peak, what do you do now when you can’t grow any more — if your business model is based on acquiring new customers and growing?”
A soured relationship with Apple
Starting with iOS 14.5 and all later versions, Apple’s App Tracking Transparency (ATT) framework requires that apps ask for users’ permission before they can track them across any apps or websites they visit. The latest iOS update has allowed users to manually select whether they wish to be tracked for ads or other related purposes. It has also snuffed the IDFA (identifier for advertisers) — a unique device code that allows companies to track users’ activity across iOS apps and services for ad targeting.
This feature change has taken a huge blow to Meta’s business model. In the past week, the company revealed that this shift in function is projected to reduce the social media company’s sales this year by up to $10 billion.
Zuckerberg has been vocal about his animosity towards the change, framing it as detrimental to small businesses who use Facebook’s platform to target their customers and generate leads. If iOS users opt-out of tracking, this will give Facebook or other ad providers far less data to source for targeted advertising — making it tougher for businesses to target local customers.
Despite this blowback, however, Apple has continuously defended its deployment of App Tracking Transparency (ATT) — with representatives asserting that the option to give users a choice on whether they want to be tracked or not supports their business model against competitors.
Following the launch of ATT, Apple has also spoken against surveillance capitalism, claiming that: “Some apps have trackers embedded in them that are taking more data than they need. Sharing it with third parties, like advertisers and data brokers, [has been] happening without your knowledge or permission. Your information is for sale. You have become the product.”
This, of course, isn’t the first instance of privacy violation being tied to Zuckerberg’s empire. And should Meta become a leader in the metaverse, are we right to fear that it won’t be the last?
Failure to launch its own crypto
In an attempt to work with the crypto and blockchain technologies that are collectively building Web3, Meta ended 2021 with a goal to achieve ‘deep compatibility’ with blockchain. By co-founding the Diem Association, the hope was that the organisation would serve as Meta’s monetary authority. However, the company’s attempt to launch its own sponsored cryptocurrency has also petered out.
Meta’s cryptocurrency project was designed to “empower billions of people”, with hopes that 1.7 billion users would be able to create their own digital wallets. However, Meta and its partners were met with resistance from regulators.
A reported quarter of the founding members of the project dropped out before their inaugural meeting in Geneva — including service giants such as Visa, Mastercard, eBay and PayPal. According to Bloomberg, the Diem Association has made the decision to sell its assets after ultimately admitting defeat. Meta has apparently agreed to sell any of their assets tied to the project for about $200 million.
Failure to join the crypto space doesn’t bode well for Meta — particularly in the toughening regulatory environment we are currently seeing as we transition from Web2 to Web3. Moreover, the foundering of their project reveals something even more dismal — that Meta may be struggling to build new things in a landscape where that very thing is paramount.
Why the sudden decline?
These quarterly earnings reports have revealed a rather alarming statistic: that for the first time ever, Meta’s growth has stagnated across the world. For the first time in its 18-year history, Facebook has lost daily users — with the largest losses occurring in Africa, Latin America and India. It’s predicted that Zuckerberg’s quest to add as many users to the platform as possible may have reached its peak.
So, what might be causing interest in Facebook to wane?
For one, its user base seems to be ageing out of the platform. In 2019, teenage users of Facebook in the US had declined by 13% and have now been projected to have dropped by a whopping 45%. Competitor platform TikTok, which now sees a total of 1 billion users worldwide (with a growth of 10% in just the last year), appears to have become the new app of choice for Gen Z users. Instagram’s popularity, in contrast to its counterpart under the greater Meta umbrella, has also remained intact.
Even Chris Cox, Facebook’s chief product officer, has addressed the shrinking number of users under the age of 40: “Most young adults perceive Facebook as a place for people in their 40s and 50s.” Moreover, he’s admitted that “young adults perceive content as boring, misleading and negative. They often have to get past irrelevant content to get to what matters.”
All of this — coupled with some of the reputational damage we mentioned earlier — makes it largely unsurprising that Meta seems to be alienating a good chunk of its user base. In its constant push for data, Facebook has been losing the trust of its users for quite some time. Between several instances of privacy violation and data breaching, an ongoing antitrust case, questionable censorship rules and now revelations of mental health endangerment from one of its former staff members, it should only seem right that we, as users, hold the platform accountable for failing to comply with the law and for putting our personal data at risk.
Of course, all of this also poses a final question: do we really want to bring these themes into Web3?
Web3 is intended to be the successor to our current internet — which is probably why it’s being characterised by concepts of greater freedom, autonomy and creative control through a more decentralised framework. Web3’s very foundation is being built upon the idea that the type of control seen in the earlier days of the web will be returned to users and brands — the control that platforms like Facebook have taken away. People are tired of having their data misused — and younger audiences are right to be less than enamoured by a platform that their predecessors no longer trust.
What’s next?
Despite recent setbacks, Zuckerberg has asserted that he is nevertheless encouraged by Meta’s progress and that he will continue to invest in its future, also citing Instagram’s Reels as an important growth area for the business as a whole. However, what does this spell for Meta’s path towards metaverse leadership — particularly as we see decentralised platforms (such as Decentraland and The Sandbox) start to build greater user bases and communities for Web3?
So far, the forecast doesn’t look too good for Meta’s Reality Labs Division. The company’s losses experienced in 2021 were apparently in line with Zuckerberg’s estimated investments and are expected to be even bigger this year. In fact, reports suggest that Reality Labs has put a massive drag on Meta’s overall margin — preventing the company from having up to $56 billion in profit. According to Meta’s CFO, operating losses are expected to “increase meaningfully” in 2022.
With plans to build the world’s fastest AI supercomputer, it appears that Zuckerberg isn’t ready to rest just yet. But if many of his users are, this certainly spells trouble for Meta’s future in Web3. Time will tell what happens next.