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Thursday, February 29, 2024

Why Meta Is Tanking—and How Zuckerberg Can Fix It

Hi, folks. Some people will win the bet that Elon completes the Twitter sale, and others will lose. But what were the odds he would enter Twitter HQ carrying a bathroom sink?

The Plain View

Despite dim expectations, Meta’s quarterly earnings call this week was shocking. While founder and CEO Mark Zuckerberg tried to keep things on an upbeat note—look on the bright side of these apocalyptic spreadsheets!—the market didn’t buy it.

Instead of seeing a glass half full, investors took note of flat growth, decreased revenue, and profits kneecapped by Zuckerberg’s single-minded pursuit of a future business that may or may not come to pass—the metaverse. Within hours of the call, Meta lost a quarter of its value. Less than a year ago, Meta was valued at nearly a trillion dollars. Today, it’s worth less than a third of that.

What led to Meta's plunge? I know a little bit about the company after covering Facebook since its early days and spending a few years writing a book that benefited from the input of hundreds of insiders, including Zuckerberg himself. So I can identify the three moments that led Facebook, or Meta, to this dire point.

2005: Sean Parker helps Zuckerberg get total control. In Facebook’s early days, Zuckerberg learned the Silicon Valley ropes from the company’s then president, Sean Parker, who felt he had recently been screwed out of his role—and the attendant riches—at a startup he’d founded, Plaxo. Under Parker’s tutelage, Zuckerberg set up a corporate structure at Facebook that assured that no one, not even the board of directors, could overrule or overthrow him. From that moment he became untouchable, even if he decided to refocus the company on a risky bet on virtual reality. He could even unilaterally change the company name!

2008: Sheryl Sandberg crafts the business model. After hiring Google ad executive Sheryl Sandberg as his chief operating officer, Zuckerberg went trekking in India and Nepal, clearing the stage for his new hire to brainstorm how his company would make money. Sandberg helped create a system that served super-effective ads based on targeted personal data. It made every early employee rich. But at a cost. Users came to resent the practice. The company got in trouble when that data was misused (see: Cambridge Analytica). And it made Meta vulnerable to any outside force that choked off its data collecting, whether from regulators or gatekeepers like Apple. When Tim Cook mandated that iPhone users could switch off the targeting, Meta lost billions.

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2012: Facebook plays catch-up with mobile. Not many people realize that Facebook had an existential scare when the action in computing shifted from the desktop to our pockets. This made Zuckerberg paranoid about being behind again when the next big thing arrived. He was determined to avoid what Clay Christensen called the Innovator’s Dilemma, which posits that dominant companies are doomed when the next paradigm arises, because their success—and their thinking—is tied to the current paradigm. When Zuckerberg saw an Oculus demo in 2014, he concluded that the future of computing lay in virtual reality. Spurred by memories of Facebook’s near-death experience with mobile, he bought Oculus for $2 billion and later went all-in, changing the company name and spending $10 billion a year on research to remove the scientific obstacles that currently make his vision of the metaverse impossible.

In the past, Meta’s problems were always mitigated by fantastic financial results. So what if people hated the company—it was making a fortune, and the stock was creeping toward that trillion-dollar valuation. Now that those gains have vaporized, Meta’s shortcomings have taken center stage. The company has been lax in improving its key products. Worse, there’s rot in them.

For years, the big changes in Facebook, Instagram, WhatsApp, and Messenger have been driven by what’s good for Meta, not what’s good for the people who use its services. Instead of improving things like, say, the birthday experience (one thing that people love about Facebook), massive resources are being expended to copy Meta’s main competitor, TikTok, something no one who uses Facebook is clamoring for. True, that approach worked to a degree when Instagram blatantly swiped Stories from Snap. But there is little chance that Meta’s TikTok clone, Reels, will surpass the originator of that format. TikTok not only has a state-of-the art discovery algorithm, it also has cachet among people under 40 that Facebook can’t match. And when it comes to retaining top talent at Meta, is being second- or third-best in short-form video (don’t forget YouTube) an inspiring mission?

So what comes next? I have a solution! Dear Zuck: Break up your company. Not in the way the regulators might want, separating Facebook from Instagram and so on. But simply acknowledge that Meta is already two companies. One is a technology bet on the metaverse, and the other is a massive social business suffering from the loss of the CEO’s focus. The twain should be split.

Meta then becomes a project to build the software and mixed-reality hardware for virtual worlds. Zuckerberg will be much happier returning to the exhilarating task of building something from scratch—he boasted in the earnings calls that work on the metaverse will wind up being “historic”—and no longer waking up every morning feeling he’s been gut-punched, as he told Joe Rogan. Funding the research-heavy Meta 2 will be a breeze. If Elon Musk can draw $44 billion from investors, banks, and his own pocket to buy Twitter, a firm that never came close to the billion-user goal it set for itself in 2009, Zuckerberg could certainly scrape up the cash for a runway long enough to develop the metaverse he so passionately believes in. Obviously the biggest investor will be his current company, devoting some of its $40 billion in cash to bet on its departed founder. One thing the new investors might specify is that the board of directors, not its CEO, will have ultimate control of the company.

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Meanwhile, the remaining company will retain all the social apps, and almost 4 billion customers. Instead of resurrecting the old Facebook moniker, I suggest it spends a bundle to buy the trademark for “People.” Put the company in the hands of engineers and designers who spend night and day striving to make those social apps great again—not by mimicking a popular rival, but by innovating to serve that mind-blowing customer base that still yields up heaps of profit.

My first suggestion for the company called People: Make birthdays easier to celebrate and harder to miss. You’re welcome, Mark!

Time Travel

In August 2007, I wrote a Newsweek cover story about Mark Zuckerberg’s breakout social network as it moved from serving only students to the world at large. Back then, his emphasis was helping people make connections to people they knew. In fact, Zuckerberg explicitly denied the idea that people would use Facebook to connect to people like those we now call influencers. Leave that to MySpace!

Zuckerberg himself, whose baby-faced looks at 23 would lead any bartender in America to scrutinize his driver's license carefully before serving a mojito, eschews talk about money. It's all about building the company. Speaking with Newsweek between bites of a tofu snack, he is much more interested in explaining why Facebook is (1) not a social-networking site but a “utility,” a tool to facilitate the information flow between users and their compatriots, family members and professional connections; (2) not just for college students; and (3) a world-changing idea of unlimited potential. Every so often he drifts back to No. 2 again, just for good measure. But the nub of his vision revolves around a concept he calls the “social graph.”

As he describes it, this is a mathematical construct that maps the real-life connections between every human on the planet. Each of us is a node radiating links to the people we know. “We don't own the social graph,” he says. “The social graph is this thing that exists in the world, and it always has and it always will. It's really most natural for people to communicate through it, because it's with the people around you, friends and business connections or whatever. What [Facebook] needed to do was construct as accurate of a model as possible of the way the social graph looks in the world. So once Facebook knows who you care about, you can upload a photo album and we can send it to all those people automatically.”

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Zuckerberg believes that this is what makes Facebook so compelling: As your friends join Facebook, that part of the social graph—the part that matters to you—moves into the digital fast lane and you're getting more out of your connections than you ever could have imagined. (Of course, since your friends on the graph are connected to other people, you have the advantage of seeing their friends, and expanding your circle.) Unlike services like the giant MySpace—which at more than 70 million users still wins in raw numbers—Facebook is not a place where emerging stand-up comics, hip indie bands and soft-porn starlets try to break out by tagging thousands of people as virtual friends. Zuckerberg even says Facebook isn't intended as a venue to seek out new people, though certainly it's possible to locate promising strangers whose relationship status is “anything I can get.”

Ask Me One Thing

Carl asks, “How are the conflicts in Ukraine and other parts of the world impacted by or influencing the spread of Covid-19?”

Thanks, Carl. It’s tough to figure out how much the Russian invasion and bombing has affected the Ukrainian case load, because case reporting during wartime is a challenge. We can’t even figure out how we’ll know the pandemic might be over in places not under attack! But the information I’ve seen indicates that the virus is very much alive in Ukraine, though nowhere near the levels of the Omicron spike of last winter, which peaked well before the invasion. One would assume that vaccinations are harder to obtain, which might portend a higher death rate if another surge is afoot in the coming colder months. As of March, Ukraine had barely a third of its population fully vaccinated (way lower than Russia or Poland), and one assumes that it hasn’t gotten much better.

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The impact on Covid in the rest of the world would seem to be mostly secondary. Higher energy prices, food shortages, and a refugee crisis are all factors that might lead to more exposure to Covid. None of this is good news, just one more reason for those of us not in Ukraine to be mindful that we are still in peril. Less so, of course, if we’re vaccinated and boosted.

You can submit questions to mail@wired.com. Write ASK LEVY in the subject line.

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