- Meta is in a “year of efficiency,” but its Metaverse ambitions remain a priority.
- The Metaverse isn’t a solution to the ad business challenges stemming from Apple’s iOS changes.
- Meta’s ad unit will only recover if it keeps innovating, so it doesn’t need to track user data to sell ads.
Meta CEO Mark Zuckerberg has called 2023 a “year of efficiency” as the social networking giant faces brutal layoffs and shrinking revenue.
Many of the company’s problems also affect its competitors in the technology industry, most notably Google. Inflation, higher interest rates and an uncertain global political situation have prompted companies to cut their online advertising budgets as they brace for a potential recession.
But Meta has a much bigger problem: Its so-called family of apps, including Facebook, Instagram, and WhatsApp, are “at Apple’s whim,” as a top Meta executive put it in a recent internal post reported by Recode.
In 2021, Apple changed its iOS operating system to limit the ability of apps to track user behavior. In February 2022, Meta predicted the changes would cost it $10 billion as it has become much more difficult to target ads to iPhone users. For his part, Apple CEO Tim Cook has repeatedly criticized Facebook’s business model over the years, with Apple going so far as to declare privacy a “human right”.
From Meta’s recent earnings report and its quest for efficiency and cost reduction, it’s clear that this cold war with Apple is taking its toll. And while Zuckerberg’s ongoing push for virtual reality and the so-called Metaverse has the potential to offer Meta an escape hatch from Apple in the form of its own platform, it’s not clear when or how these nascent ambitions will materialize.
“As we look at it, whenever the next computing platform comes out, they want to keep moving up,” said Bernstein analyst Mark Shmulik. “They want to participate in the application layer. They want to be the operating system. They want to own the hardware like Apple does.”
Until then, the situation will continue to escalate unless Meta makes much-needed changes to its advertising strategy, particularly so that it doesn’t rely on another company’s operating system or tracking user data, industry experts told Insider.
“As long as they’re running on iOS, there’s a risk they’ll wake up and Apple can make another privacy change,” Loup Ventures analyst Gene Munster said. “I think that’s probably why there’s such bad blood between the companies, because Facebook just knows they can control these things, but they can’t avoid continuing to get hit.”
Meta needs a new advertising strategy if it wants to survive
Over the past year, Meta has focused on building better tools to make advertising decisions without tracking users. That’s a strategy that must continue, Munster said. That includes using AI to help advertisers make decisions, which the company talked about on its recent earnings conference call.
“That’s why Meta this year is all about continuing to build better tools to mitigate the risk they will have from Apple,” Munster said. “And I think this is a big year for them because they’ve been working hard on it for a year, but they still haven’t gotten there.”
As competition in the advertising space increases, with players like Amazon now gaining traction and Apple looking to build an ad business of its own, it’s more important than ever for Facebook to have a fresh strategy, analysts said.
Focusing on the metaverse isn’t a complete solution to this problem either, some analysts warn. People just aren’t going to spend as much time in a virtual environment as they do on mobile devices, said Carolina Milanesi of Creative Strategies. So Meta is right to focus on that, but it shouldn’t take the place of innovation in its core advertising business, she said.
What Meta also needs to think about is what value it can offer users by asking to track their data, Milanesi said. Right now, users see no value in allowing Facebook or Instagram to access their data, but if they could change that perception, it would also solve some of their hurdles with iOS privacy changes.
“If Facebook gave consumers a reason to share the data because the value, the return on investment of sharing my data was so obvious and important to me, I would do that,” Milanesi said.
Ultimately, Facebook needs to rethink how it advertises to users without having to track their data and without relying on another company’s operating system, while still complying with changing privacy laws. It could already be on the road to success there, Bernsteins Shmulik said. Every year there is a new challenge in the form of regulations like the CCPA in California or the GDPR in Europe, he said.
“Meta is being forced to create workarounds so quickly, not just to accommodate Apple’s changes, but really where it sees the state of digital advertising data usage,” Shmulik said. “In fact, I would argue that their ad product has now extended its lead over some of their competitors.”
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