Analysis |  Facebook's austerity era couldn't have come at a worse time

Analysis | Facebook’s austerity era couldn’t have come at a worse time

You can’t control when a recession hits. But although tech platforms like Alphabet Inc. and Snap Inc. are weakening in the face of the global economic rout, Meta Platforms Inc.’s own restructuring couldn’t come at a worse time for the company.

Meta CEO Mark Zuckerberg told staff on Thursday to expect job cuts and a small business overall in 2023. He is currently grappling with the hit to advertising revenue from restrictions on privacy policy from Apple Inc., which could cost the company around £14 billion. ($15.4 billion) in ad sales this year. The company is also striving to create a competitor to TikTok, while turning to virtual reality in what could be the biggest strategic misfire in Facebook history.

It makes sense to cut costs in the face of a recession, but Zuckerberg has put himself in a difficult position to reorganize resources that are competing for very different goals. It’s no surprise that investors are increasingly worried about his iron grip on the company. Shares of Meta are down 60% so far this year. On Friday morning, they were trading at $136; around this time last year, they hit $378.

Even if shares fell below $100, investors probably can’t do much to remove Zuckerberg from his role as CEO since he owns 51% of Meta’s voting rights, thanks to his corporate structure. two-class shares. Facebook’s board has always been docile, but even if it starts complaining, it has the power to remove a director “with or without cause,” according to the company’s bylaws.

Zuckerberg’s cuts will be the first since Facebook was founded in 2004 and will involve a hiring freeze and the restructuring of some teams to help reduce expenses, according to comments he made during a Q&A session. weekly with staff, as reported by Bloomberg News.

“I had hoped the economy would have stabilized more clearly now,” Zuckerberg said. “But from what we’re seeing, it doesn’t appear to be the case yet, so we want to plan somewhat conservatively.”

Recessions can be a mixed blessing in technology. Over the past few years, too many startups have been able to raise money for big ideas that lacked a viable business model, and lean times can force entrepreneurs to be more disciplined in their capital spending. , creating businesses in a less exorbitant way.

“Thousands of businesses are set to close by 2023,” Tom Stafford, co-founder of late-stage technology investment firm DST Global, told the Bloomberg Technology Summit this week. He added that the startup investment market, which has slowed markedly over the past six months, is “much healthier now than it was a year ago.”

But Facebook isn’t a startup, and for years it’s offered some of big tech’s most competitive advantages. Stafford also said that just last year, Facebook was approaching staff at its portfolio companies with offers at five times their salary, “which is hard to say no to.”

The company’s multiple big goals could confuse Zuckerberg’s efforts to effectively restructure. It already appears to be struggling to emulate TikTok with its shortened Instagram video feature called Reels, according to a Wall Street Journal report earlier this month, which cited internal Meta research. User engagement with Reels has declined over the summer as “most Reel users have no engagement.”

Zuckerberg’s costly move to the Metaverse also inspires less and less confidence. It posted a virtual selfie last month that has been widely derided for its crude graphics, and the company’s focus on headsets as the primary gateway to the metaverse seems reckless. The most successful metaverse platforms already exist in 2D, with Roblox Corp. and Quinzaine from Epic Games Inc., and have managed to attract millions of regular users with incentives around building and sharing experiences.

Meta has instead focused on the immersive feel of its VR products, which isn’t that appealing. Its Horizon Worlds also don’t have the same kinds of built-in incentives as Roblox and Fortnight.

Zuckerberg needs to work on fixing all of these issues, in addition to finding ways to make up for the billions in lost revenue due to Apple’s privacy limits on iPhones.

Facebook was once a trillion-dollar company with seemingly unstoppable growth in digital advertising, but that advertising growth is slowing and the company’s other attempts to generate revenue are failing. Restructuring will help Meta pull through, but an economic downturn could ultimately hasten the company’s decline.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Parmy Olson is a Bloomberg Opinion columnist covering technology. A former journalist for the Wall Street Journal and Forbes, she is the author of “We Are Anonymous”.

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