Analysis – is Facebook really in decline? Should publishers be concerned?
The clue was in the re-brand. When Google changed its name to Alphabet in 2015 some pundits suggested that this was a move to take the spotlight off the cadence of bad news that was starting to engulf the tech giant.
So we should have known that when Facebook rechristened itself as Meta in autumn 2021, there might not be good news on the horizon.
And so it has proved to be for Meta/Facebook has a mounting list of issues that are at best, making investors slightly nervous, or at worst leading pundits to predict that the entire empire is about to come crashing down.
What makes it even more concerning for Facebook is that the problems seem to be very company-specific. After all, Microsoft, Apple, Alphabet/Google and Amazon all smashed through analyst expectations in their recent results, whereas Facebook saw as much as $200 billion wiped off its market value.
So what are those problems and what are the implications for media companies across the globe? Would a Facebook-free world actually deliver a better media environment for content companies. Hold that thought.
The short-term issues
So the macro picture is dominated by two key factors. Last week it emerged that for the first time the number of users of Facebook actually fell. While at the same time the company revealed that in the first quarter of 2022 it would not hit market forecasts with expected revenue in the region of $27bn-$29bn compared with a projected figure of $30bn.
The day when the number or users declined was always going to arrive. The worry for the company though is that given the way it has become the social media platform of choice for an older demographic, some of its users are, through a number of factors, including illness and death, not going to use the platform any more.
At the same time many younger users perceive that Facebook is for their parents, and indeed grandparents, and besides there are more exciting social media platforms to engage with.
As for the drop in digital advertising, again the decline was going to begin some time.
Last year Facebook made over $40 billion in profit mainly from advertising, so it is still a huge cash cow.
So maybe the downfall is a bump in the road for the company? After all, one poor-ish set of results is not the last word on a company’s prospects.
The tricky part for Zuckerberg and his team of execs is that they are facing challenges on a number of fronts. Like the partygate scandal dogging the UK PM Boris Johnson, every time the company tries to move on another issue pops up.
So what are the challenges? Here’s a quick resume of some of the most pressing ones
1 Younger audiences aren’t using the platform – There was a point when Facebook could point to Instagram and argue that the box is ticked when it comes to younger audiences. Yet those audiences have never really migrated from one platform to another leaving Facebook with an ever ageing set of users.
More worrying for the company now though is that younger audiences are spending more of their online browsing time elsewhere. It was no coincidence that during the recent Facebook financial report call the words Tik Tok were mentioned nearly a dozen times. And unlike in the past when Facebook’s tactic, if it was threatened by an emerging social media platform, was to purchase it, it simply won’t be able to buy Tik Tok. The chances of it creating a new platform to rival it seem slim too. So Facebook is going to have to learn to live with Tik Tok hoovering up billions of views.
2 It is struggling with privacy changes – In summer 2021 Apple changed its privacy settings on its iPhone introducing its “app-tracking transparency” (ATT) feature. This requires iPhone users to give explicit consent for user-level and device ID-based monitoring by apps.
This has hit Facebook hard, and may have cost the company as much as $10bn in lost advertising revenue. To put that in perspective that figure is 8.5% of the company’s 2021 revenues, or a quarter of its overall profit for the year.
Facebook is clearly struggling more with the Apple updates than its rivals. This isn’t surprising as Apple was hardly going to evolve its systems to benefit its core rival. It does also highlight a vulnerability that wasn’t previously worrying Facebook’s execs. What if Apple, or Google through its Android phones, shifts the goalposts again?
The culling of third party cookies from Google Chrome browser, which is set for next year, is on the scale of things a smaller problem, but it is likely that it too will eat into the company’s advertising revenues.
3 The metaverse is a long way off – Mark Zuckerberg’s vision for the company is built around the potential of VR and AR becoming the next major computing platform. And it has invested heavily in developing Reality Labs, the division responsible for the Quest VR headset, VR software, forthcoming AR glasses, and other metaverse-related initiatives.
The problem for Facebook is that metaverse is’t going mainstream any time soon. In fact some pundits have predicted that it could be as much as a decade before we see serious revenues generated by the concept, and even then, there is no clear path to profitability.
Zuckerberg told CNBC last year “Our business model isn’t going to primarily be around trying to sell devices at a large premium or anything like that because our mission is around serving as many people as possible. So we want to make everything that we do as affordable as possible, so as many people as possible can get into it and then compounds the size of the digital economy inside it.”
This implies that the key revenue source could be sales of digital items, or virtual goods, rather than the hardware. In the same interview, he said “I think digital goods and creators are just going to be huge… in terms of people expressing themselves through their avatars, through digital clothing, through digital goods, the apps that they have, that they bring with them from place to place.
A lot of the metaverse experience is going to be around being able to teleport from one experience to another. So being able to basically have your digital goods and your inventory and bring them from place to place, that’s going to be a big investment that people make.”
One way that Facebook might monetise the metaverse is through a shift from digital advertising to interactive brand storytelling.
Chris Perry, Director UK of adtech platform Getfluence told FIPP.
“It is doubtful that personalised advertising – or Meta – will go away any time soon but lessons learned from that may lead to marketers and publishers looking for new avenues for audiences to engage with content and brands in the metaverse that Zuckerberg’s company is building.
Brand storytelling is on the rise – in fact, the paid media industry is expected to reach $402 billion in value in 2025, up from $85.83 billion in 2020. That is why branded content, which is immersive, informative and engaging may be the future for both Meta and the publishing industry. While at the moment longform written content tends to be most impactful in paid media, we may start seeing media companies creating personalised and interactive experiences for their audiences in the metaverse. This is likely to become necessary for such companies to stand out from the crowd and attract new audiences, perhaps even to survive.”
This may prove to be an inspired long term bet but it isn’t quelling the fears of some investors in the short term who wish that the company would get back to focusing on its core product, collecting ad revenue from social media platforms,
4 Rumblings in the board – A couple of days ago Peter Thiel, who has been a key investor in Facebook from its very early days and an important confidante of Mark Zuckerberg, confirmed that he was leaving the company’s board. He apparently is going to focus on his political activities supporting the US Republican party.
Thiel is a controversial figure who has clashed with Zuckerberg especially over issues of censorship. Yet he has played a major role in shaping Facebook and has consistently been a key champion of Zuckerberg’s vision for the company. Whether he is confident about the company’s direction of travel is open to conjecture, but in some ways he couldn’t have picked a worse time to leave.
5 The issue with the EU – It may prove to be the proverbial storm in teacup, but Facebook has a few things to iron out with the European Union. EU regulators are currently composing new legislation which could in theory prevent users’ data being transferred across the Atlantic.
Facebook is not happy with this initiative, The company recently stated that if it is not given the option to transfer, store and process data from its European users on US-based servers, Facebook and Instagram may be shut down across Europe.
A recent missive from its PR wing stated; “If a new transatlantic data transfer framework is not adopted and we are unable to continue to rely on SCCs (standard contractual clauses) or rely upon other alternative means of data transfers from Europe to the United States, we will likely be unable to offer a number of our most significant products and services, including Facebook and Instagram, in Europe.”
It does appear though that the EU is prepared to call Facebook’s bluff on this one.
Earlier this week Germany’s new economy minister Robert Habeck told reporters during a meeting in Paris: “After I was hacked I have lived without Facebook and Twitter for four years and life has been fantastic.
Meanwhile, his colleague, French Finance Minister Bruno Le Maire added: “I can confirm that life would be very good without Facebook and that we would live very well without Facebook.”
It would be very unlikely for a compromise not to be reached, but once again it is another issue that Facebook could do without and a ‘compromise’ could deal yet another financial hit.
So can the magazine publishing industry live without Facebook?
There is no denying that Facebook is still an important source of traffic, especially for news-based sites. In 2021 Echobox published figures which showed that Facebook over 13% of news publishers’ traffic came from Facebook which was up 2% on the previous year Outside of search it is still a premium source of traffic generation for many publishers.
Might it be that even if Facebook does start to slide it will be replaced by something else?
John Wilpers, Co-Founder and Partner, Katahdin Media Management believes so
“Nothing will completely replace social media as a way to reach more readers and potential readers outside of our own channels. Social media is ubiquitous. It isn’t going away. Platforms may change, but there will always be the Facebooks, Instagrams, and Twitters of the world. The key is to learn how to manipulate the platforms, rather than being manipulated by them. The platforms should be used to drive traffic, test ideas, and raise awareness — never as a vehicle for content.”
From this vantage point it is hard to imagine a world without Facebook. Yet there is a good chance that it will evolve and look like an entirely different beast in a few years time. We might even see the company split up with Instagram and Whatsapp becoming separate entities.
It is also worth noting that Facebook has overcome serious challenges before especially in relation to the Cambridge Analytica scandal of 2018. After that disaster it made significant changes very quickly. It will be fascinating to see if the current problem it faces generates a similar outcome.
