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Facebook may not have been the first social media platform, but it has withstood many challenges — until recently.
Meta, which owns Facebook, Instagram and WhatsApp, saw its value drop by $80bn (£69bn) in a single day at the end of October, with third-quarter profits halved amid the global slowdown. Meta now has sales of about $270 billion, compared to over $1 trillion last year.
A number of issues have kept investors away from the social media giant, including falling advertising revenue, a dispute with Apple over its app store payment policy and competition from new platforms such as TikTok for a younger audience.
Meta CEO Mark Zuckerberg has used his majority control to double down on his ambitions to acquire the $100 billion-plus virtual reality project “metaverse” — with questionable results as an early investor and media reaction. Zuckerberg has promised to invest more in Metaverse next year.
It’s tempting to describe this spending spree as a billionaire’s “crazy fantasy,” but there’s a simpler explanation. As major platforms compete for limited ad revenue, regulation — especially when it varies between countries or regions — has created space for multiple competitors.
That’s good news for new social media companies, but the only way Meta can maintain its dominance is by betting big on future technology. Zuckerberg believes this means the Metaverse, but that remains to be seen.
The fortunes of tech are changing.
Even with recent problems, Meta is the largest social network in the world. Those latest results, which have investors flocking to them, showed total revenue of $27 billion and a profit of $4.4 billion.
In order to maintain its position as a market leader in the past, Meta bought the most promising competitors as soon as possible. Integrating these new startups into the company’s ecosystem has helped boost ad revenue and fend off competition.
Research shows that digital markets are typically dominated by one company, but these companies tend to be more specialized than the previous major companies. Meta only works on social media and makes money only by selling ads.
Attempts by such companies to expand into other areas often fail – do you know someone with a Facebook phone? And even if you don’t remember Google’s foray into social media, iPhone users are probably at least familiar with Apple’s Maps app.
So Facebook depends on users to make money using tools that other tech companies make. But as global social media ad revenue continues to decline, this is becoming increasingly difficult. Apple has started charging Meta, for example, with revenue from iPhone users. Studies have shown that when two companies compete for revenue from a single captive source, the sequential outcome not only leads to higher prices for consumers, but lower profits for both companies.
World domination has fallen
Meta’s strategy has allowed it to dominate social media in Western markets until recently – but not in China, which has more than 300 million social media users. In the year Since 2009, Facebook has been blocked by the country’s “Great Firewall,” the world’s largest and most sophisticated censorship system.
Attempts to bring Facebook into line with Chinese government media controls have never been successful. And so the Chinese company Byte Dance in 2012 created a news platform called Tutiao without having to compete with the main social networks. In the year In 2016, Byte Dance Duyin launched a social media platform for publishing short videos, which was later released to the rest of the world as TikTok in 2018.
While not profitable, ByteDance’s market capitalization is now estimated at around $300 billion – compared to Meta’s current estimate of £270 billion. It is also popular among young users to be the most popular social media users.
Meta simply can’t afford TikTok, it’s too big, it’s not publicly traded, and it’s tightly controlled by the Chinese government. Zuckerberg’s company tried to compete by introducing similar features on Instagram instead. Interestingly, India is the only major market where this strategy works. The country that banned Tik Tok in 2021 due to a military conflict with China.
Fair competition
As TikTok expands beyond its potential, Western regulators are also beginning to examine the impact of a lack of competition in digital markets on innovation. Research shows that the winner-take-all nature of highly innovative markets is typically good for consumers, which is only true when all firms have a fair chance to dominate.
In addition to recent rulings challenging tech company dominance by the High Court, the EU recently introduced the Digital Markets Act. This prevents many practices used by major companies to maintain their position in the market.
Similar legislation is expected in the US after November’s midterm elections, and the UK has forced Meta to sell its gif library to ensure it doesn’t reduce competition in the online advertising sector.
All of this means that Meta will have to invest in its own products in order for Facebook to remain dominant. To become tomorrow’s market leader, the company cannot rely solely on buying promising startups.
But his exchange is a messy project and an unusual bet. After all, Google failed to take interest in Google Glass, despite the success of the technology behind it. What has changed to convince regular people to wear virtual reality headsets on a regular basis?
The only option for Meta may be to find a better idea to invest. In the meantime, the rule will continue to protect potential competitors. This is great news for consumers and creators alike: now may be the best time to launch a new social media format that can compete with giants like Meta to become the market leader.
This article is reprinted from the discussion under a Creative Commons license. Read the original article.
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