For years, the definition of success for many tech employees has been getting a job at a FAANG company (Facebook, Amazon, Apple, Netflix, Google). Amazon, Apple, Microsoft, Facebook, and Google, meanwhile, are often the five major companies people think of when they think of "big tech."
But there is evidence that Facebook—once a dominant monopoly rightly blamed for all sorts of societal ills—is on the precipice of dropping out of this group through years of sheer mismanagement, a failure to innovate, setting money on fire in pursuit of a metaverse that seemingly no one wants, a vulnerable business model that Apple is squarely taking aim at, and upstart competitors like TikTok that the company seemingly has no answer for. What seemed impossible just a year or two ago—that Facebook will become just another tech company, more or less—now seems like a very real possibility.
In a little over one year, the company has shed nearly $800 billion of its market capitalization, with the lion's share of that coming these past eight months. To be clear, the company is one of the biggest tech firms in existence, with billions of people regularly using its products and a still growing user base, and yet, by the definition of one proposed antitrust bill, has sat below the market capitalization of what counts as “Big Tech” for months.
The company’s pivot to the metaverse, complete with a name change (Meta Platforms Inc.) and a soulless PR campaign featuring chief executive Mark Zuckerberg’s sickly digital avatar, has resulted in it hemorrhaging money, while its core products—Facebook, Instagram, and WhatsApp—all seem to have very real vulnerabilities. Reality Labs, Facebook's metaverse fantasy team, burned through $4.5 billion in 2019, $6.62 billion in 2020, and $10.19 billion in 2021 (that’s over $21 billion).
In a February 2022 earnings call, chief financial officer David Wehner said those operating losses would "increase meaningfully" this year. And they have. Another $9.4 billion in losses have been realized in just the last three quarters, bringing Reality Labs’ operating losses to north of $31 billion. On this week's third quarter earnings call, Wehner warned that they "anticipate that Reality Labs operating losses will grow significantly year-over year." Meta's stock has fallen about 70 percent this year.
By all indicators, the metaverse is a wasteland devoid of any souls save those who are too zealous or too well compensated to realize admit how stupid it is. For now. While Zuckerberg’s main contribution has been to add legs to his company’s avatars and ship out nausea-inducing headsets needed to access this realm, he promises that this new world he’s building should be ready in 10 to 15 years.
Zuckerberg's obsession with the metaverse is one major problem, but there are fundamental issues plaguing the company's core business that suggest Meta isn't going to just be able to effortlessly maintain the massive money printing factories that are Facebook and Instagram, and there is even reason to worry about WhatsApp's future as the world's most popular messenger.
Schooled By a Real Monopoly: Apple
Facebook’s core advertising business is flashing some warning signs thanks to another, more competent monopoly that has long been a thorn in its side: Apple.
In a Q1 earnings call, Facebook warned that Apple’s 2021 privacy changes to its iOS operating system—which makes it harder for third parties like Facebook to harvest data to target users—would be "a pretty significant headwind for our business" to the tune of $10 billion in advertiser revenue this year. In a Q2 earnings call, Zuckerberg warned of "an economic downturn that will have a broad impact on the digital advertising business." Sure enough, over the past four quarters, Facebook's ad revenue has faltered: $33.67 billion (Q4 ‘21), $26.998 billion (Q1 ‘22), $28.152 billion (Q2 ‘22), and $27.2 billion (Q3 ‘22), with first-ever year-over-year declines reported these last two quarters.
For investors looking to generate excess profits on trades and investments, all of this is part of a dark and dreary picture. Facebook's revenue has declined for two consecutive quarters, costs and expenses are surging, operating margin is spiraling downwards, net income has been cut substantially, and so investors have abandoned ship and brought the share price down nearly 70 percent this year.
Earlier this week, Apple announced yet another change that would also hit Facebook. Apple said it would consider buying ads within the Facebook app to be a "digital purchase" subject to the App Store's 30 percent commission. It's too early to say how much this will affect Facebook, but it's not good. This is especially important for a few reasons: Facebook makes more money per user in North America than it does from any other region, and Apple's iPhone is now used by more Americans than Android is. It's also gaining market share around the world. iPhone owners are also, on average, more wealthy and thus it can be more expensive to target them with ads.
The rise of the iPhone in the U.S. and, more importantly, around the world may also, eventually, be problematic for Facebook if WhatsApp users begin to migrate toward iMessage and other messaging apps.
An Advertising Platform
Beyond an excuse to indulge in schadenfreude, should you or anyone else you know care about Zuckerberg losing $100 billion of his net worth?
As Malcolm Harris points out in a terrific NYMag piece, there are some people thinking about all of this through the lense of "technofeudalism," which argues that capitalist firms have leveraged monopolies into extensive data extractivist and rentier schemes. In this telling, Facebook is all-powerful and its march towards omnipotence inevitable—but on closer examination, we might realize this sounds remarkably like Silicon Valley’s self-mythology that doesn't track with how things have actually ended up.
"Facebook is much less than what the technofeudalists make it out to be,” Harris writes. “It's an advertising platform that wrings pennies out of users' scrap time—attention that would otherwise go to waste, at least from the capitalist perspective."
For a long time the heart of Meta was Facebook, its advertising platform masquerading as a social network. Its major moves to reach for digital monopoly status beyond this came in the form of acquisitions or clones of competitors' products. Instagram was acquired for $1 billion in 2012, Oculus VR in 2014 for $2 billion, and WhatsApp for $19 billion in 2014.
Its dozens of acquisitions have not only worked to support its core offerings, but eliminate competition or buyout talent—and when that fails, cloning a competitor service has been an option. Most notably, Facebook has offered clones in the form of Portal—an Amazon Echo clone that was recently killed off for consumers—and Reels, a TikTok clone that users and advertisers have struggled with. Reels has proven to be a disaster, with Instagram users spending less than 10 percent of the time watching Reels as TikTok users spend on their platform. None of Facebook's clones have been very successful since Instagram Stories, which was introduced all the way back in 2016. Quite simply, by many metrics, Facebook is getting its ass kicked by TikTok.
Monopolize the metaverse or fade to irrelevance
With Facebook core still incredibly popular worldwide but increasingly feeling like a bloated piece of garbage whose power users in the United States are aging (and, is, specifically, not being used by American teens) Instagram is regularly held up as being a lesser disaster of a platform, albeit one whose most popular and famous users are actively revolting against it. With all this going on, Facebook is now leaning on the last of its monopoly-seeking acquisitions that it thinks might still have legs: virtual reality, which is turning into a gigantic money pit.
This is a stunning change of circumstances for a company that once threw its weight around with confidence and attempted to colonize as much of life outside of the Facebook app as possible. In pursuit of capitalist monopolies in various sectors, there exists a long list of projects Facebook has poured its endless resources into. Facebook has sought to radically change aspects of our lives with decisions about how specific platforms will operate, precisely because it has leveraged economic power into other forms.
The examples range from the benign to monstrous in form and consequence: the "pivot to video" that restructured newsrooms was based on fake metrics, ending payments to U.S. publishers to shift focus to subsidizing creators on its platform, a failed attempt to introduce shopping to Instagram, a dating app that seems to have fizzled quietly into nothing, internet-beaming drones and satellites that ultimately were vaporware, and a content moderation system that radicalized users and incited a genocide, these are just a few examples.
At one point, Facebook even tried to monopolize the global monetary system with Libra, a global cryptocurrency backed by a basket of currencies and assets (e.g. a stablecoin), and Calibra, a digital wallet for said stablecoin. Immediately, regulators worldwide expressed concerns Libra would compete with sovereign currencies and undermine their authority on designing and implementing monetary policy. Part of Facebook's pitch was that it was too big to fail—or be broken up—in the context of a geopolitical struggle against China and its technology firms. Facebook promised Libra would extend the power of the U.S. dollar, and even downgraded its plans to a U.S.-backed stablecoin (Diem) coupled with a smaller wallet (Novi). Stil, the plan was laid into by Congress, quietly killed by financial authorities, sold for scraps to a bank, and the project’s head slunk out the back.
What was the right way to understand Libra? A technofeudalist might have read it as another milestone on its inevitable march towards omnipotence. The project was announced with a coalition of dozens of corporations and non-profit organizations, it was being pushed by a chief executive with inordinate influence in Washington and Wall Street, and by a company with billions of users. And yet it was smothered in the crib.
Evgeny Morozov—founder of The Syllabus and one of the main critics of the technofeudal model—offered a much simpler rationale that speaks to how the company has flailed for unassailable monopolies as its core product lagged: Facebook wanted to create another core business. It was interested in finance because Chinese tech giants showed payments and communications systems complement one another well; to compete in foreign markets with established Chinese firms it would need to offer its own payment-communication system; by aggressively moving against Chinese firms it could skirt regulatory roadblocks by framing itself as a strategic asset in a tech Cold War with China. Morozov wrote that Libra would have also helped the social network turn a greater profit.
“Yes, Facebook would need to pay something to its users—but, in turn, it would also be able to charge them for its services," he wrote. "As long as all such transactions are conducted in a currency under its implicit control—and if Facebook succeeds in convincing its users that their data, on its own, has far less value than the services it supplies—it would not necessarily be such a bad outcome for the company.”
So, Facebook was first and foremost pursuing a strategy to diversify its business while insulating it from antitrust scrutiny. It was denied that opportunity, but this doesn’t diminish the very real need for that pivot—especially as antitrust scrutiny has increased in the years since Libra was first proposed. Facebook doubling down on the metaverse, despite the infeasibility of the project and despite declines in advertising revenue, suggest lethargy as much as ambition. We’re seeing the reformulation of a necessary but desperate gambit by the company to do something which will allow it to preserve a key role in the digital economy, with or without advertisers. Finance was the first attempt, a depressing digital simulacrum of the real world is the second one.
Facebook Hasn't Fallen Yet
Every time Zuckerberg was trotted out in front of Congress, he was adamant that Facebook is not a monopoly, and that it faces plenty of competition on the internet. It was hard to imagine, at the time, that Zuckerberg would shift from being a weirdo obsessed with dominating social media to become a weirdo obsessed with lighting cash on fire in pursuit of becoming the premiere place to play virtual ping pong with a heavy computer strapped to your face. It was also hard to predict that this obsession would utterly tank his company.
But just because Facebook appears to be in actual, real trouble for the first time in its history does not mean this slow decline to become just another advertising giant is inevitable, nor does it mean that we can forgive and forget its monopolistic behaviors and endeavors. Facebook is still a gigantic force that has spread an endless amount of disinformation and misinformation worldwide, a hugely important platform, and a monopolistic company; this cannot be waved away simply because the company is grossly incompetent.
Perhaps Facebook's most monopolistic endeavor was Free Basics, a program to provide "free" internet access to people in developing countries—free, as long as the "internet" they were accessing was Facebook. The legacy of Free Basics and the simple fact that huge parts of the global population still interact with Facebook or Facebook-owned platforms as their only access to "the internet" is deeply concerning and remains dangerous.
Within this understanding of Facebook, though, there’s reason to pause and celebrate. For one, while this is still a juggernaut that can and will throw its weight around at great cost to us and great profit to itself, it’s also a fragile and withering one that has to contend with investors who don’t care about Zuckerberg’s next three Five-Year Plans for competing with China and building a core non-advertising business line. There is a possible near future, if we're not already there, where Meta is just another company rather than a world-shaping monolith, having been outfoxed and outclassed by more competent monopolies and wrecked by the hubris of its chief executive.
Secondly, regulators seem to be wise to this plan, or at least elements of it: the FTC has already sought to block Facebook acquisitions of companies that might help it build the metaverse it so desperately needs to work at this point. Finally, Meta's failure is another chance to spur people to think about and advocate for alternatives to the technological offerings we have today, and to prevent Facebook from recementing its stranglehold on our culture or upstarts from recreating it. What sort of communication, payments, and social media platforms do we actually want—especially if we don’t design them with advertiser revenue as the core concern? What sort of technologies should be allowed to flourish and what sorts should be prohibited?
Facebook’s miscalculation about its ability to pursue finance as a new line of business, compounded by its miscalculation about investors’ patience for the metaverse as a new line of business, compounded by Apple’s ability to leverage its monopoly to damage Facebook's core business have left Facebook weaker in the markets and in our culture than at any point in recent memory. Whether regulators or competitors (or we) will be able to take advantage of this moment of weakness, however, is another question altogether.