Apar GuptaOver the past week Meta Platforms, which owns and operates Facebook, Instagram and WhatsApp, has taken a big market hit. Its shares dropped 25%, wiping off at least $240 billion off its market capitalisation. As of Monday, this trend continued with another dip of 4.7%, a cumulative stock price fall of 30% since its earnings report for the fourth quarter of 2021.Is Meta’s share fall a part of the overall bearish market sentiment on global technology companies? No, because the Alphabet-Google stock is down only 1.8% and the Amazon stock, after a drop, is now witnessing a rally. Therefore, markets are sending a bigger message to Meta.
Market analysts have set out two primary reasons for Meta’s challenges. The first is that Facebook has lost roughly half a million users, marking a decline in its global user base for the first time. While this may seem like a blip in the overall number of 1.93 billion active daily users, if this continues as a trend, it will lead to a negative network effect.
The doctrine of network effects says that the value of a communications network is proportional to the square of the number of its connected users. Just as this plays out when most people join social media, a shrinking user base will usually have a compound impact that will spur greater attrition – simply, each person leaving Facebook, prompts another.
The justification provided by Meta in its earnings reports and investor calls have focussed on, “ increased competition for people’s time”. This means that more social media users today prefer native video sharing platforms such as TikTok to Facebook, or even Instagram Reels.
The second reason is contained within the press release accompanying Meta’s financial results and states, “ We will overlap a period in which Apple’s iOS changes were not in effect and we anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes”.
The doctrine of network effects says that the value of a communications network is proportional to the square of the number of its connected users. Just as this plays out when most people join social media, a shrinking user base will usually have a compound impact that will spur greater attrition – simply, each person leaving Facebook, prompts another.
The justification provided by Meta in its earnings reports and investor calls have focussed on, “ increased competition for people’s time”. This means that more social media users today prefer native video sharing platforms such as TikTok to Facebook, or even Instagram Reels.
The second reason is contained within the press release accompanying Meta’s financial results and states, “ We will overlap a period in which Apple’s iOS changes were not in effect and we anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes”.
This essentially means that Meta, an advertising company, is facing challenges targeting its users due to privacy protections and regulations on data protection. The most prominent has been due to technical changes in iPhones after iOS 14.5, which lets users disable ad-tracking.
The response to these “headwinds” has been a mix of an intermediate solution and long-term product strategy. Immediately, Meta is focussing on video, and group messaging features to counter challenges from TikTok and similar platforms. It’s also devising new ways of ad delivery that are contextual and operate within the boundaries of ad-tracking blockers as those devised by Apple.
The longer term response is building a Metaverse. This will be possibly a constellation of immersive virtual reality environments that will serve as the next generation of social media interactions. While market analysts are forecasting uncertain capital expenditures and user adoption as concerns, there is a greater reason to consider privacy and data protection challenges.
The response to these “headwinds” has been a mix of an intermediate solution and long-term product strategy. Immediately, Meta is focussing on video, and group messaging features to counter challenges from TikTok and similar platforms. It’s also devising new ways of ad delivery that are contextual and operate within the boundaries of ad-tracking blockers as those devised by Apple.
The longer term response is building a Metaverse. This will be possibly a constellation of immersive virtual reality environments that will serve as the next generation of social media interactions. While market analysts are forecasting uncertain capital expenditures and user adoption as concerns, there is a greater reason to consider privacy and data protection challenges.
Any immersive, virtual reality environment is likely to have greater adhesion to users leading to greater data collection. For instance, take a user’s eye as an example. It is one of our many organs that will be digitised and then rendered within the Metaverse.
As per a framework released by XRSI, a non-profit organisation working on rights around virtual reality environments, tracking in the Metaverse may include, “eye opening and closure; eye movements; eye health; pupil properties; iris characteristics; eyelid and skin properties”. This list is far from exhaustive but neatly captures the scale, granularity and extent of data collection possible through the Metaverse.
To allay such concerns a founder’s letter by Mark Zuckerberg emphasises that, “Privacy and safety need to be built into the Metaverse from day one. So do open standards and interoperability.” However, this intent may not be implemented in engineering design or business practises if the core economic model of serving ads through data collection does not change. Similar human rights concerns and larger business impacts will manifest in time if the core business that powered Facebook is adopted by Meta.
Continuing a harmful, tired approach would also mean taking on most regulators and national governments that are devising or enforcing privacy regulations.
Also, social media-generated problems like abuse, disinformation and social polarisation will be likely more severe in a virtual reality environment like the Metaverse, which will have the ability to render more vivid experiences and alter our sense of reality.
Continuing a harmful, tired approach would also mean taking on most regulators and national governments that are devising or enforcing privacy regulations.
Also, social media-generated problems like abuse, disinformation and social polarisation will be likely more severe in a virtual reality environment like the Metaverse, which will have the ability to render more vivid experiences and alter our sense of reality.
This strategy comes at a time when user trust in Meta is low thanks to regular public scandals, including revelations by whistleblower Frances Haugen in several complaints to the US Securities Exchange Commission. In her subsequent testimony to the US Senate she has stated that, “I’m here today because I believe Facebook’s products harm children, stoke division and weaken our democracy.”
To avoid repeating the same mistakes, and therefore avoid user disapproval, Meta needs to look at the first principles around which social media was built and Metaverse will be built. Unless the business model changes, the Metaverse may be Metaworse for both Meta’s users as well as shareholders.
To avoid repeating the same mistakes, and therefore avoid user disapproval, Meta needs to look at the first principles around which social media was built and Metaverse will be built. Unless the business model changes, the Metaverse may be Metaworse for both Meta’s users as well as shareholders.
This article was published in the Times of India on February 8, 2022, 19:59 IST