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A blog by Leon Oudejans

Facebook Has Probably Peaked. What Can Mark Zuckerberg Do Now? (Bloomberg)

Introduction LO:

Facebook was founded in 2004, not even twenty years ago. Over the years, it has made a lot of enemies, who will smell blood now. The chances of Big Tech regulation have increased due to Facebook’s weakening.

The easiest way would be to remove Section 230 from the “Communications Decency Act, that generally provides immunity for website platforms with respect to third-party content.” The introduction of legal liability would erode its remaining profitability and future survival.

Facebook stirs up conflict and/or emotions in order to increase its viewers (ie, clickbait). Hence, I nicknamed its business model – and its consequences – into my blog label Click-Bait-Fight-Regulate.

Its internal risk management must have highlighted the high risk of future regulation due to (i) its business model and (ii) an increasingly polarised and partisan American society. You can only wonder whether its management was arrogant, deaf, ignorant, incompetent, and/or stupid.

An alternative thought is that Section 230 gave Facebook immunity and thus Power. Facebook neglected the rest of the Love, Knowledge & Power triangle. And as Lord Acton (1834-1902) once observed:

“Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority, still more when you superadd the tendency or the certainty of corruption by authority. There is no worse heresy than that the office sanctifies the holder of it.”

John Dalberg-Acton, 1st Baron Acton a.k.a Lord Acton

Facebook Has Probably Peaked. What Can Mark Zuckerberg Do Now?

Bloomberg subtitle: The social network’s first ever drop in daily users is a landmark moment, and it is hard to see the company’s founder steering the company back to growth.
By: Parmy Olson
Date: 3 February 2022

“For years, Wall Street kept faith in Facebook’s powerful ad machine. Investors gave Mark Zuckerberg the benefit of the doubt when he bet the company’s future on the metaverse and they largely forgave callous business practices revealed by a whistleblower. What mattered was the constant user growth that kept the machine printing money — a machine that accounts for a remarkable 98% of total revenue.

It is why, for years, “daily active users” was the North Star to Zuckerberg and his executives. Now, for the first time, that number has declined. Still classified as a “buy” by most analysts surveyed by Bloomberg, Facebook was downgraded by four banks, including JP Morgan Chase & Co.

Facebook said its daily users fell to 1.929 billion in the fourth quarter from 1.93 billion. You can imagine that “2 billion daily users” was firmly in Zuckerberg’s mind as the next big target, but it is hard to see him reaching that now. With his long-term inability to build attractive new services in the face of growing competition, a new reality is sinking in: Facebook looks like a company in decline.

In its earnings call on Wednesday night, Meta pointed to all the headwinds it faces, including a $10 billion hit to its ad business this year from Apple’s privacy changes for its mobile users. And it announced that its Reality Labs segment, where its plans for the metaverse are brewing, lost $10.2 billion in 2021.  

But Meta’s biggest weakness has been plain to see. It has tried for years to build a consumer internet service with the same allure as Facebook or Instagram, and each one – from Facebook Watch to TikTok-rival Reels — has fizzled out or struggled to make money. The company’s cryptocurrency Diem recently folded, despite being announced with great fanfare more than two years ago. That business in particular could have pulled Meta back towards its arguably healthier, early days, when it derived roughly 15% of revenue from payments made via games like Zynga’s Farmville.

Over the years, that slice of revenue dwindled to almost nothing, as Facebook’s addiction to the advertising business grew. That has left Facebook — the least diversified Big Tech firm — vulnerable to any drop in users and their all-important engagement metrics with advertisers.

This latest drop, in the last quarter, was written on the wall for some time. Staff at Facebook had grown concerned in recent years about an exodus of young users, largely invisible to people outside the company, which formed the basis of Facebook whistleblower Frances Haugen’s complaint to the Securities and Exchange Commission last year.

Zuckerberg can no longer buy his way into a new business in the same way his $1 billion purchase of Instagram greased the wheels for a successful pivot to mobile back in 2012. Today, Meta can afford an already-successful metaverse company like Roblox Corp., but regulators almost certainly wouldn’t allow it. They have promised more scrutiny of Big Tech deals, and already sought to reverse a $315 million deal that Facebook made last year with Giphy.

What happens next? Zuckerberg could appease investors with a stock buyback. And as his executives settle into carrying on with business, as they always have in the face of previous setbacks and scandals, Zuckerberg may want to be seen “doing something” to manage Facebook’s growth issues. A time-honored tactic is shuffling deck chairs. He may see replacing Sheryl Sandberg, the company’s chief operating officer and Zuckerberg’s right-hand-woman for 14 years, as the next best alternative to replacing to himself.

Zuckerberg cannot be moved. He holds a majority of Meta’s voting shares and oversees largely pliant board; he expects to still be Meta’s chief executive officer in five years. That means investors shouldn’t expect an eventual turnaround like Microsoft Corp.’s, sparked by the replacement of Steve Ballmer by Satya Nadella in 2014.

For now, they must follow Zuckerberg into the metaverse in the hope that daily active users will pick up along the way, or at least stop declining. That seems a tall order.”

Note by Bloomberg:

Parmy Olson is a Bloomberg Opinion columnist covering technology. She previously reported for the Wall Street Journal and Forbes and is the author of “We Are Anonymous.”



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