Problems at Facebook: An aging userbase, lack of innovation explain decline of social media giant

Aug 22, 2022 | 9 comments

By David Leonhardt

In October of last year, my colleague Kevin Roose wrote a column titled, “Facebook Is Weaker Than We Knew.” His hook was a series of stories in The Wall Street Journal, based on internal company documents, which revealed the company’s failure to stop content that damaged teen mental health, spread vaccine misinformation and more.

“It would be easy enough to come away thinking that Facebook is terrifyingly powerful,” Kevin wrote. “But there’s another way to read the series, and it’s the interpretation that has reverberated louder inside my brain as each new installment has landed. Which is: Facebook is in trouble.”

The societal damage that the company was causing seemed to be a sign that its executives were struggling to attract more users and taking desperate measures to do so. Yet Kevin also included a major caveat: The company’s stock had still been rising over the previous year, a sign that investors remained confident.

That’s no longer the case.

The stock has fallen more than 50 percent over the past year. In the most recent quarter, company revenue fell slightly and profits fell 36 percent. Mark Zuckerberg, the chief executive, blamed a broad economic downturn that had reduced spending on digital ads, and it certainly played a role. But the specific problems facing Meta, as Facebook’s parent company is now called, seem to be the main cause.

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Consider this chart, with compares Meta, Alphabet (Google’s parent company) and the S&P 500:

I know that many readers probably still think of Facebook as a behemoth. And in many ways it still is. As Kevin has written: “It can simultaneously be true that Facebook is in decline and that it is still one of the most influential companies in history, with the ability to shape politics and culture all over the globe.”

This morning, I’ll lay out the four biggest problems facing the company.

1. The age problem
If you have children, you’ve probably noticed that they prefer other social media platforms. To many of them, Facebook is for older people — which is not exactly a recipe for growth. Helen Lewis of The Atlantic, among others, has described the platform as “Boomerbook.”

Yes, many teenagers and younger adults use Instagram, which Facebook bought a decade ago. But even Instagram has been struggling to keep up.

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“TikTok is absolutely eating Instagram’s lunch right now, in terms of usage and cultural sway, and advertisers generally want to be where the young people are,” Kevin told me. “Even though Meta has tried to copy TikTok’s most successful features and shove them into Instagram Reels, they’re limited in how much change users will accept without a fight.”

Last month, for example, Kylie Jenner complained to her 361 million followers, “Make Instagram Instagram again.” An anti-Instagram pile-on ensued, as The Times’s Kalley Huang wrote.

2. The innovation problem
“The company just doesn’t appear to know how to invent successful new stuff,” Farhad Manjoo of Times Opinion has written. “Most of its biggest hits — not just two of its main products, Instagram and WhatsApp, but many of its most-used features, like Instagram Stories — were invented elsewhere. They made their way to Facebook either through acquisitions or, when that didn’t work, outright copying.”

That’s a big change from Facebook’s first decade, when it transformed social media. Especially important was its News Feed, which meant users no longer had to spend time searching out other accounts to know what people were posting.

Since the company went public in 2012, it has been much less innovative.

3. The metaverse problem
Zuckerberg feels so strongly that the metaverse — based around world of virtual-reality, or VR — represents the future of the internet that he renamed the company after it.

“It’s been almost a year since Facebook rebranded itself Meta and announced its big push into the metaverse, and there aren’t a lot of big, obvious wins to show for it,” Kevin said. “VR is still pretty niche, and it’s not clear how much usage apps like Horizon Worlds are getting. (Although, if any Meta employees are reading this, I would love to know!)”

When Zuckerberg unveiled parts of the company’s platform last week, critics mocked it as looking dated. He responded by acknowledging it was “pretty basic” and promised “major updates” soon.

One positive sign for the company: It has sold more than 10 million of its VR headsets, which may suggest the niche is growing. But it remains unclear whether VR has anywhere near the mass-market appeal that social media does.

4. The antitrust problem
Some Meta supporters argue that the company’s recent struggles prove that it isn’t the omnipotent force that its critics claim — and that the federal government should go easy on it. But I think that claim misses what’s really going on.

The company has become less dominant partly because both the Trump and Biden administrations have taken a tougher stance toward mergers.

“If Mark Zuckerberg could acquire his way out of this problem, as he did by buying Instagram back in 2012, he absolutely would,” Kevin said. “But regulators, at least under this administration, aren’t going to let him.”

One example: The Federal Trade Commission, led by Lina Khan, who has called for tougher antimonopoly policies, is trying to block Meta’s acquisition of Within, a VR fitness start-up. Khan and her colleagues worry Meta may be trying prevent future competitors from forming by buying them first.

Depending on your point of view, it’s either ironic or fitting. As Kevin said, “Facebook became so dominant, in part by acting in anticompetitive ways for so many years, that Meta is losing its dominance as a result.”

The bottom line: Facebook remains among the world’s most powerful companies, with the ability to influence elections, public health much more. It also continues to produce huge amounts of revenue, which will allow it many chances to create successful new products. But its struggles are real, and they don’t show any sign of disappearing.
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Credit: The New York Times Morning Letter




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