AdGuard VPN Blog Mark Zuckerberg in the Metaverse of Madness: Meta is freefalling into an abyss. What has gone wrong?

Mark Zuckerberg in the Metaverse of Madness: Meta is freefalling into an abyss. What has gone wrong?

A year ago Facebook CEO Mark Zuckerberg announced that his company would now be called Meta. The new name was to reflect the brand new vision Zuckerberg had for his social media empire: it should become a metarverse, or a network of virtual worlds, where netizens could mingle with each other in an supposedly exciting and meaningful way.

While outlining his vision for what has become his ultimate pet project, Zuckerberg wrote that the metaverse would “touch every product” his company builds. Speaking about investing heavily in crafting the virtual world, Zuckeberg noted: “We’ll need to make sure we don’t lose too much money along the way though.”

On a downward spiral

Fast-forward to today, Zuckerberg seems to be ignoring his own advice. Meta’s third quarter earnings report came out as a huge disappointment to investors, sending the company’s shares tumbling 24% to their lowest price since 2016. Revenue fell 4% year-over-year, while net income dropped from $9.1 billion to mere $4.3 billion. Free cash flow dwindled to a trickle, amounting to a modest $173 million in the third quarter, a far cry from $9.5 billion last year. All of this did not discourage Zuckerberg from standing by his decision to earmark even more billions towards his so far underwhelming metarverse project — despite mounting criticism.

The current setback is not just a bump on the otherwise smooth road from which Meta will quickly recover. Meta reported its first-ever decline in ad revenue in July . It has now been declining for two consecutive quarters, and is expected to continue going south in the next one. Meta’s stock price is down over 70% this year, and there is no positive news to push it back up significantly.

Meta is on a downward spiral
Photo: Jaakko Kemppainen on Unsplash

The company has recently dropped from the list of 20 most valuable US companies, while its employees have just gone through the first mass layoff in Meta’s history that affected 13% of the company’s workforce or 11,000 people.

Perhaps Mark Zuckerberg’s company has never looked worse for wear than it does now. But how did it get to this point?

From mom and dad’s territory to digital graveyard

There were times when Facebook and Instagram were in vogue with teenagers and young audiences, but those times are long gone. Young users have grown particularly disenchanted with Facebook, the more stagnant app of the two. A recent Pew survey found that only 32% of Americans between 13 and 17 use Facebook, down significantly from 71% less than a decade ago. Even when 67% of teens were using Facebook daily in 2012, many already associated it with something negative. A leaked company memo last year revealed that Facebook sees the “aging” of its user base a major threat, but is failing to turn the tide. The memo forecast that the number of teenage users at Facebook will decline by 45% and that of young adults by 4% in two years. As Facebook internal research noted, young adults “have a wide range of negative associations with Facebook including privacy concerns, impact to their wellbeing, along with low awareness of relevant services.”

Until recently, Meta could find relative solace in the popularity of its photo-sharing service, Instagram. But it too has been losing ground to apps such as TikTok and Snapchat. In a recent survey by Piper Sandler 38% of teens called TikTok their favorite social media. Snapchat came second (30%), and Instagram lagged far behind at 20%. In the internal memo obtained by the New York Times, Instagram sounded the alarm about falling out of favor with teenagers. “If we lose the teen foothold in the U.S. we lose the pipeline,” it states.

Facebook risks turning into a digital graveyard
Photo: Kyle Larivee/Unsplash

So far, Instagram’s attempts to win back young users have fallen flat. In a typical Meta fashion, Instagram has sought to attract teenagers… by showering them with ads. The Times reported that since 2018 Instagram “earmarked almost its entire global annual marketing budget” to target teenagers “largely through digital ads.” Without going into the ethical aspects of targeting this highly impressionable crowd with ads, it’s no surprise that teens now want to stay clear of the site. Instagram has also tried to court young users with TikTok’s copycat — Reels. Introduced in 2020, Reels has been one of the fastest growing Meta products, but the company is still struggling to monetize it. Besides, why have a replica when you can have the original?

All of this spells disaster for Meta’s ad-driven model long-term: if the paying demographic stops engaging with the platforms, then advertisers will stop spending as much money on buying ads from Meta. And since ad money is Meta’s main source of revenue, no fresh blood means that its coffers are going to be depleted sooner or later.

Increased competition, annoying ads and the lack of own ideas are not the only reasons why users are migrating to other apps. Meta is notorious for its dismal privacy record, and while TikTok has also courted its share of privacy-related concerns, Meta’s list of transgressions is longer and far better documented.

Privacy minefield

From the Cambridge Analytica scandal to the latest accusations of skirting Apple’s privacy rules, Facebook is no stranger to privacy blunders.

In 2018, Facebook admitted that it could have shared personal data of up to 87 million people without their consent with a now defunct UK-based data firm Cambridge Analytica. The ripples of this scandal have been haunting Meta till this day. Just in August this year Meta agreed to settle a 4-year-old class privacy class action lawsuit stemming from the Cambridge Analytica scandal for an undisclosed amount.

This summer it has been revealed that Facebook’s ad tracking tool, Meta Pixel, could have been sending sensitive medical data collected from hospital websites to Meta. The hospitals that had the tracker embedded on their websites included one of the US largest children’s medical networks.

Problematic is also Meta’s close cooperation with the US law enforcement. Thus, a recent report by The Intercept revealed that Facebook (along with Twitter) has set up a special portal for the government to request the expedited removal of a wide range of dissenting content, which it considers “disinformation.”. NSA whistleblower Edward Snowden compared the practice to censorship.

You won’t know if Meta decides to violate your privacy
Photo: Benny Samuel/Unsplash

Neither Facebook nor Instagram are end-to-end encrypted by default, so users have also to accept the risk that their message history and other data might be turned over to police. As the debate about abortion rights was raging in the US, it was revealed that Meta had turned over a teen’s and her mom’s DMs to police, which resulted in them being hit with illegal abortion charges.

It’s hard to keep track of all privacy scandals in which Meta has been mired. And it’s a safe bet that its privacy transgressions will continue to pile up. It’s probably naive to expect a company whose business model revolves around collecting huge amounts of data and repackaging it into a product to sell to advertisers to be particularly pious about privacy anyway.

Most recently, Meta has been accused of circumventing Apple’s privacy rules. A lawsuit claimed that Meta continued to track iOS users even after they specifically opted out of tracking by third-party apps and websites. Meta began searching for workarounds for a good reason. Apple’s privacy feature dealt a crushing blow to Meta’s ability to sell targeted ads, with the policy estimated to cost Meta $10 billion in lost revenue this year alone.

It seems that despite promising users to protect their privacy after the Cambridge Analytica fiasco, Meta has repeatedly reneged on its promise, mostly sticking to its old ways.

Zuckeberg’s pet project is already a sinking ship?

The widening crackdown on third-party tracking apparently was part of the reason why Meta decided to explore other ways of making money. And while the attempt to diversify the company’s revenue structure is sensible in itself, Zuckerberg has put all of his chips on the metaverse, and this increasingly looks like a losing bet.

In the first nine months of 2022 alone, Meta has splurged $9.4 billion on Reality Labs, its division tasked with building the metaverse. And while the costs are projected to rise — Meta said that it anticipates Reality Labs operating losses in 2023 “to grow significantly year-over-year” — the revenue is falling. In the third quarter, Reality Labs brought in Meta only $285 million compared to $558 million last year.

The way Meta is burning through cash to support the metaverse has angered shareholders, forcing Zuckerberg to do damage control. In the earnings call late October, Zuckerberg sought to defend his spending binge by arguing that the company desperately needs to diversify and that the metaverse would be profitable long-term.

“There’s macroeconomic issues. There’s a lot of competition. There’s ads challenges, especially coming from Apple. And then there’s some of the longer-term things that we’re taking on expenses because we believe that they’re going to provide greater returns over time,” Zuckerberg reportedly told investors.

However, so far Zuckerberg’s vision not only cost the company large sums of money, but also failed to win hearts and minds, even those of Meta’s own employees — which is arguably a far bigger issue than any short-term losses.

Meta’s metaverse is already looking like a sinking ship
Photo: Aneta Foubíková/Unsplash

The Wall Street Journal reported last month that Meta’s flagship VR app Horizon Worlds has been losing traction, and currently has about 200,000 monthly active users as opposed to the reported 300,000 in February. Meta has also lowered its initial goal of having 500,000 monthly active users by the end of this year nearly by half. Moreover, the app reportedly fails to retain existing users, with the majority of newcomers leaving after just one month.

Even Meta employees won’t use it

There is also an apparent lack of enthusiasm for Horizon Worlds among Meta’s own staff. In the internal documents, obtained by the Verge, Meta’s VP of Metaverse, Vishal Shah, accused employees of not spending enough time in virtual spaces and warned managers of accountability if they fail to force co-workers to enter the metaverse at least once a week. “Everyone in this organization should make it their mission to fall in love with Horizon Worlds,” Shah wrote.

While Meta is struggling to draw engagement to its “lifeless”, “sad” and “empty” metaverse, there are examples of successful and well-populated ones.

Metaverse does not looking very welcoming to the outsider
Screenshot from Horizon Worlds's website

Meta is not the trailblazer in the field. Free-to-play online gaming platform Roblox, one of the early metaverse pioneers, boasts an entire in-game ecosystem with an intricate economy. Minecraft is another example of a thriving metaverse, which is also decentralized, meaning that anyone can create their own version of a metaverse inside the game — and all that without requiring any sophisticated or expensive equipment like a virtual reality headset.

When outside matches inside

With how Meta is structured, shareholders have only to pray that Zuckeberg’s metaverse gamble pays off because they cannot influence the CEO’s decision-making in any way except for selling shares. While Zuckerberg is not the company’s biggest shareholder, he retains sole control over Meta thanks to a stock of the super-voting shares and is essentially unfireable.

And while they say “the fish rots from the head”, Meta’s latest woes can also be explained by its struggle to attract top talent. In a report issued last year, Meta acknowledged that it was “pacing behind” competitors when it came to attracting skilled tech candidates. The report noted that Facebook received the lowest proportion (14%) of positive sentiment among potential tech employees in comparison to other tech giants, such as Microsoft (25%) and TikTok (26%).

There have been also reports of Meta employees complaining about the inadequate work-life balance and describing the work culture as “toxic” and “cult-like.”.

Is Meta doomed?

Meta is still a tech behemoth, and it’s too early to say that its days are numbered. But as the public and governments pay more and more attention to privacy issues, its model, based mainly on harvesting personal data for profit, is proving unsustainable. Taking into account increasing competition from more teen-friedly apps like TikTok, Meta is facing tough times.

Zuckerberg has shown that he’s willing to empty the company’s coffers to breathe a new life into his struggling empire. Much hinges on the metaverse’s success or failure. At the moment, however, everything seems to paint a rather bleak picture of what has become of Zuckerberg’s VR endeavor.

Meta will, no doubt, try to cling to its ad profits. The company has shown repeatedly that it does not have user privacy in high regard, and if given the chance, will try to circumvent any protections that are already in place.

We believe that corporations built on the de-facto sale of user data and lies, should not be successful long-term. The metaverse, as a by-product of this corrupt empire, should not survive either. By continuing to disregard changing sentiments towards privacy, Meta has painted itself into a corner. And while Zuckerberg has said that he is focused on making "serving young adults the North Star”, it increasingly looks like the younger generation does not want to be served. Everything is rotten in the state of Meta, and the taste has long gone foul.

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