Meta's Perfect Storm

Today Meta announced the layoff of 11,000 employees, or 13% of workers. This is the first time Meta has had to make such a difficult decision in its life. Meta has only known growth.

Meta has had to make this decision because of a perfect storm of challenges. These include

• Users choosing not to be tracked

• New competition from TikTok and others

• Advertiser pulling back

• The pandemic bubble has burst

• The Metaverse is not gaining traction

• Apple’s AR/VR headset looms large

The rest of this post expands on these challenges.

Users choosing not to be tracked

Meta, the king of the surveillance economy, is being hit hard by Apple’s privacy policy. This new policy requires apps get their users’ consent before tracking the user. In the past, users were tracked without their knowledge or without the option to opt out. When given the choice, users are largely choosing not to be tracked. This loss of surveillance data about people makes Meta less valuable to advertisers.

New competition from TikTok and others

Meta is facing its first serious competition in social media - TikTok. Users are increasingly spending their time on TikTok and not on Meta properties. New competition for digital ad dollars from established big players are coming as well. Both Netflix and Apple will soon support an advertising tier for their streaming content.

Advertiser pulling back

With an expected looming recession coming, companies are already pulling back on ad spending. This is where Meta, and social networks in general, make almost all of their money.

The pandemic bubble has burst

Online properties including Meta saw huge a growth in usage as the pandemic began. Zuckerberg thought the growth was permanent. Meta added large numbers of employees to support what they thought was a permanent boost in usage. It turns out that the pandemic boost was not permanent. The pandemic bubble has burst.

The Metaverse is not gaining traction

The Metaverse is not taking off. Meta has made a huge bet that the Metaverse will be the next big thing, and Meta intends to dominate it. This bet is so large that Facebook changed its name to Meta to reflect the importance of this shift in attention and development resources. Unfortunately, despite massive investments over a number of years, there is no evidence that Meta’s vision is gaining traction. Last quarter revenue in this area was actually down from a year earlier, and NFTs and cryptocurrencies, anticipated key enablers of the Metaverse economy, have cratered over the last year.

Apple’s AR/VR headset looms large

Apple has not announced it is developing an AR/VR headset, but everyone believes they are. It is Apple worst kept secret. Most analysts believe Apple will ship their first headset in 2023. Meta (née Facebook) shipped their first VR headset in 2016 and have released several new headsets since. Its current headsets are the Meta Quest 2 (released in 2020) and Meta Quest Pro (released 2022).

Despite Meta having a 7-year head start over Apple, many analysts are expecting Apple to dominate the AR/VR field. Meta has been spending billions of dollars every year to dominate this field but with little to show for this investment besides massive losses, and now the champion of smartphones is about to enter the market.