Could Facebook be dead in the water?

Could Facebook be dead in the water?

Since its launch nearly two decades ago, Facebook has become a media giant like no other – stretching to every corner of the globe and counting more than half of the entire population as users. The company’s re-branding to Meta at the end of last year was supposed to be the next step in its evolution. However, a matter of months later and it has been anything but. 

In fact, the platform lost half a million active users in Q4 2021 ‘ its first decline in the company’s history. On top of this, its financial results were so poor that shares fell 25 percent at one point, wiping $240 billion off its market value, which triggered a 2 percent drop in the Nasdaq Index. 

If the social media giant does not manage to stem the flow of users off of the site soon, Meta (ironically Hebrew for ‘dead’) might well decide to pull the plug on Facebook as it shifts its focus to the Metaverse. 

The issue of user retention

Since the emergence of the so-called ‘Facebook Papers’ in September of 2021, the organization has been losing active users. Now they are facing a stark Gen Z issue. TikTok is rapidly monopolising user’s attention ‘ particularly among the core demographic of young adults. Whilst the video platform caters perfectly to this crucial group for the advertisers who contribute over 90 percent of Meta’s revenue, Facebook has been left with an ageing user base. Therefore, not only does Facebook now need to reconnect with Gen Z users, but it also needs to develop new and innovative ways to monetize the platform that are not already available in the wider market. 

Facebook is a platform that has been churning active users for many years from its traditional strongholds, but the pace of new user acquisition from emerging markets did well to mask this from the public. The stark reality today however means that the seamlessly limitless pool of emerging territories has eventually dried up and the platform’s MAU (monthly active user) losses have now come to the surface and will only start to accelerate over the coming years. 

To add to this dilemma, Facebook has also been plagued by a recent series of outages, leaving users unable to communicate. At the end of the day, Facebook is all about creating habit – if you break that habit, people can easily become disengaged and start doing something else or using other platforms. 

Apple & Advertising 

In addition to trying to preserve its dwindling (but still valuable) captive audience, Facebook are also now facing additional challenges since the removal of the IDFA and introduction of Apple App Tracking Transparency. Under Apple’s ‘App Tracking Transparency’ feature, iPhone users are now required to provide explicit consent for providing access to these unique identifiers. Unsurprisingly, users have declined to share this information en-masse. 

While other industry giants such as Alphabet were less exposed to the impact of Apple’s privacy changes and removal of IDFA, Meta has been left grasping for a lifeline. The removal of such an important device identifier has fundamentally impacted the efficacy of marketing iOS apps on the platform. This has led to substantial iOS advertising revenue moving away from Facebook and towards Apple’s own Apple Search Ads platform. In fact, Facebook is now expected to lose $10 billion this year in missed advertising revenue alone.

The question of Europe

To add to the pressure Facebook is already facing, Meta could soon find itself unable to transfer data between Europe and the U.S. ‘ a reality that could see Facebook shut down across Europe. 

Previously, Facebook has relied on ‘Privacy Shield’ and ‘Standard Contractual Clauses’ to regulate how data is transferred between different regions. However, the primary was invalidated in July 2020 and the latter has been openly criticised by regulators. Now, Meta has hinted that unless a new framework is introduced that supports data transfer between the two regions, its operations will have to be reconsidered entirely. 

The arrival of the Metaverse 

The arrival of the Metaverse was unveiled with such fanfare and was meant to lay the foundations for the evolution of the company. However, while it may show promise in years to come, in its current format it appears half-baked, and by all accounts rushed out to help cover some of the cracks in Meta/Facebook’s once-bulletproof armour. 

If Meta and/or Facebook is to survive for the foreseeable future, changes will need to be swift. These need to start from a top level. Zuckerberg’s leadership has come under such scrutiny in the past few years, it would make sense for the Founder to step down to give a new wave of digital innovators a chance to rebrand and re-innovate Meta’s offering. In my view, the only way out of this for Meta is further growth-through-acquisition, and that is a finite path.

Looking ahead 

Facebook is undoubtedly fighting an uphill battle, and one that it is unlikely to win. Whilst the newly re-branded Meta will be around in twenty years, it is more likely to be a tech acquisition hub buying companies in order to grow. 

If Facebook is to remain, it now needs to address the impending governmental regulation across the globe. This inherently requires greater transparency and, most importantly, relinquishing some control. Even if the company manages to achieve this, it’s highly likely Facebook will be a tiny shadow of its former self. 

Back in 2004, Facebook was an innovator with competitors few and far between. Fast forward to today, the sector is saturated and a strong market position is no longer a guarantee. The key thing Facebook have lost over the past five years is public support. At the end of the day, once this is gone, it is extremely hard to crawl back. Ultimately, without a thriving user base, and with market competitors such as TikTok hot on their heels, Facebook will be all but dead in the water. 

Mike Rhodes
Mike Rhodes

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