Facebook looked unstoppable. Then a series of home truths caught up with the tech giant. Now it faces its biggest test.

At one point last week Meta’s share price was down more than 25 percent. The company formerly known as Facebook lost US$240 billion from its market value after publishing its latest results.

Since then it has drifted lower and is down by almost a third on this time a month ago.

Last week’s fall was the biggest single day market value drop in business history. The event saw the Nasdaq index drop two percent.

Not Facebook’s first stumble

Growth has slowed. The core product looks jaded. Costs are spinning out of control.

Meta tells an unconvincing story about where it wants to go with the metaverse.

The company is not about to collapse or go away, but it will change. You may not recognise what it becomes.

Competition strikes at Meta’s core

In comparison Meta looks vulnerable. It faces intense competition on two fronts. The regulatory challenges continue to mount and the leadership does not appear to on top of matters.

Apple’s app-tracking transparency feature was always going to hurt Facebook. If anything, its effect was more pronounced than analysts expected.

Apple’s privacy move

To no-one’s suprise, many iPhone users chose not to give consent. As many as three in four have cut off Facebook’s snooping. That undermines Facebook’s pitch to advertisers.

That cost Meta US$10 billion in lost advertising revenue. At 8.5 percent, the figure is getting on for a tenth of Facebook’s annual revenue. More important, it is one quarter of annual profit.

This time it is different

Increasingly Facebook is the place for old people. Their children and grandchildren prefer the Chinese-owned TikTok app. It now has more than a billion users.

TikTok poses an unusual threat. Because it features short video clips, it sucks up even more attention than Facebook. Facebook’s surveillance capitalism model depends on how much user attention it can grab. TikTok does a better job of this.

You may remember Donald Trump attempting to ban TikTok. When he was president he claimed it was a security threat. The biggest threat it poses is to Facebook.

Saturation

It’s possible this is temporary. But an equally likely interpretation is that Facebook is losing the allure it once had.

When a product like Facebook is growing, there’s a network effect. As more people climb onboard there are more reasons for others to join. If this goes into reverse, there could be a downward spiral.

You may choose to quit Facebook if the friends you value the most are no longer there.

Meta- washing the toxicity

Facebook, or Meta, needs to find a path from the immediate and longer term problems it faces.

A switch to being the metaverse company may not be the right strategy, but it is a strategy. It has billions it can throw at research and development. The company plans to invest US$10 billion a year in the metaverse. There are huge resources of smart people, patents and other intellectual property.

Throw enough of these ingredients about and something can emerge. It can come from left field. The Apple Mac emerged from expensive yet wacky-looking research projects carried out by Xerox.

Zuckerberg - the problem that's hardest to fix

In part the huge share sell-off was a vote of no confidence in Zuckerberg. He was lucky once turning a website for ranking hot collage girls into a major corporation. Can he do what Steve Jobs managed and repair the business he founded as it enters a new, difficult phase?

What emerges will not be the Facebook you know today. That isn’t going away soon, but its power and influence will diminish. It’s unlikely the metaverse vision that Facebook has outlined will be the answer either.

Facebook stumbles was first posted at billbennett.co.nz.

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