Facebook seeks to change course as Meta’s revenue falls

Nearly two decades after Facebook’s inception and astronomical rise, the Silicon Valley staple is changing course in an effort to preserve its top spot in the digital landscape as it faces new headwinds.

Meta is shifting to adapt to a changing climate for tech with product updates and a focus on virtual reality.

But the company is facing a battle on all fronts as it vies to maintain its status — working to convince consumers and investors to embrace CEO Mark Zuckerberg’s vision for the company’s future while confronting a Federal Trade Commission (FTC) intent on mitigating Meta’s market power, increasing competition from platforms such as TikTok, industry changes impeding ad revenue and the looming threat of a recession.

Zuckerberg told investors at the end of July the company is focused on riding two “major technological waves” — artificial intelligence (AI) and the metaverse.

The focus on AI is leading to more short-term changes, including updates to push recommended content on Instagram and Facebook. The focus on the metaverse is part of a more long term initiative the company is continuing to invest in.

Zuckerberg first unveiled the company’s next phase focusing on virtual reality, as well as announcing that Facebook was rebranding under the metaverse-inspired parent company name Meta, in October, when the company was fresh off another round of increased scrutiny from regulators after a whistleblower leaked internal documents.

“I think there’s a lot of attention [on the] monetization strategy,” said Dan Ives, an analyst for Wedbush, about the metaverse focus.

“They’re laying the groundwork for what should be a significant opportunity down the road, but in the near-term this is essentially a company based on Facebook. I think the name change is great from a PR perspective but it doesn’t change the challenges they face 100 percent. And I think there’s still skepticism that they’re going to be successful,” Ives added.

On the earnings call last month, Zuckerberg expanded on the forthcoming updates in the move toward virtual reality.

“Given some of the product and business constraints we face now, I feel even more strongly now that developing these platforms will unlock hundreds of billions of dollars, if not trillions, over time,” he said. “This is obviously a very expensive undertaking over the next several years, but as the metaverse becomes more important in every part of how we live — from our social platforms and entertainment, to work and education and commerce — I’m confident that we’re going to be glad that we played an important role in building this.”

Zuckerberg’s comments reassuring investors about the shift to the metaverse came as the company reported a revenue loss for the first time in its history. Meta’s overall revenue dropped to $28.8 billion in the quarter ending in June.

As Meta embarks on its path to build in the metaverse, it’s also fending off a fresh lawsuit from the FTC, now with prominent Big Tech critic Lina Khan at the helm, after the agency previously sued the company to try to unwind its acquisitions of Instagram and WhatsApp under the Trump administration.

In one of Khan’s most prominent moves since taking the reins, the FTC’s new Democratic majority voted at the end of July to launch a suit against Meta aimed at blocking the company from acquiring the virtual reality company Within Unlimited.

The FTC’s complaint argues Meta could have built its own virtual reality app to compete in the space, but is choosing to buy a potential rival in a way that limits competition and could lead to less innovation, lower quality, higher prices and less consumer choice.

Meta rejected the agency’s claims.

“The FTC’s case is based on ideology and speculation, not evidence,” the company said in a statement when the lawsuit was filed. “By attacking this deal … the FTC is sending a chilling message to anyone who wishes to innovate in VR. We are confident that our acquisition of Within will be good for people, developers and the VR space.”

Last week, Meta, Within Unlimited and the FTC came to an agreement for the deal not to close until Jan. 1 pending the outcome of a trial for the preliminary injunction to block the acquisition. The parties are scheduled to meet for a virtual hearing on Aug. 15, according to court documents.

The conflict over Meta’s attempt to acquire Within Unlimited comes after the tech giant previously bought the virtual reality company Oculus in 2014, laying the foundation to enter its metaverse-focused next phase.

“That was huge for VR in general and, really, something that’s important to remember is that having those consumer virtual reality experiences didn’t exist in the same way before all of those sort of inexpensive headsets came out. So it’s already had an enormous impact,” Andrea Stevenson Won, an assistant professor at Cornell University and director of their Virtual Embodiment Lab, said of the Oculus purchase.

Through the acquisition of Oculus, Meta has launched Quest headsets, priced around $400, that allow users to enter the company’s Horizon Worlds platform. The headsets are a more comfortable, relatively cheaper version of the equipment that makes it more accessible to consumers, Won said.

On the consumer level, the virtual reality metaverse world has been more commonly used in gaming. Meta’s vision is to bring users together socially, or to work, even without the base of a video game.

Zuckerberg said on last month’s call the company will expand Horizon, its social metaverse platform, and continue to improve avatars on the platform. Meta will launch a web version of Horizon that he said “should dramatically increase” the number of people who can use the platform.

As part of the pitch, the company has been on a campaign to explain the vision of the metaverse to users.

Metaverse Vice President Vishal Shah showcased Horizon Worlds and the Oculus headset in an interview last week with the “Today” show’s Craig Melvin. The interview, in part, was conducted inside Meta’s Horizon Worlds, showcasing the virtual product for “Today” show viewers with a side-by-side screen of Melvin with the headset and Melvin’s avatar inside Horizon.

Last month, Meta also kicked off its new “Are We There Yet” digital series with actress Keke Palmer interviewing metaverse creators and experts to explain the virtual reality world and its features.

As Meta continues its long-term push on the metaverse and fends off the FTC’s suit, the company is making short-term changes to its existing apps to compete with rising competition — mainly from TikTok.

Facebook and Instagram interfaces have been updated in recent weeks to operate more similarly in some ways to the popular video sharing app.

Meta is going to push more recommended content using the platforms’ algorithms, meaning users are more likely to see content the platform is recommending over posts from accounts they follow. The company last month rolled out a home feed redesign that will include a “Home” tab with content driven by Facebook’s algorithm, and a separate “Feeds” tab that will allow users to see posts in chronological order from friends, groups and pages they follow.

Instagram is also putting more of an emphasis on video content, with its TikTok-like Reels feature, over photos.

The changes have been met with criticism, including some prominent celebrities such as Kylie Jenner and Kim Kardashian who have a combined Instagram follower count of 692 million.

Instagram also tested an update to look more like TikTok, with users seeing full screen photos and videos on the app. But the company decided not to follow through with the full screen change after pushback.

“I’m glad we took a risk — if we’re not failing every once in a while, we’re not thinking big enough or bold enough,” Instagram chief Adam Mosseri told Platformer in an interview. “But we definitely need to take a big step back and regroup. [When] we’ve learned a lot, then we come back with some sort of new idea or iteration. So we’re going to work through that.”

Beyond user criticism and the FTC, some of Meta’s challenges stem from Apple’s iOS update released last year that forced apps to ask users before tracking their data across apps. The change impacted Meta’s ability to gain revenue from targeted advertising.

Meta campaigned hard against the update, casting it as detrimental to small businesses. Zuckerberg again pointed to the Apple update as a challenge on the most recent earnings call.

The company is still pushing for users to embrace targeted advertising, trying to sell it as a way to help connect them with relevant small businesses.

A Meta ad launched earlier this year celebrates targeted advertising through a song, parade and dancing penguins. The nearly 2-minute long ad showcases users finding different businesses — an “eco sponge” maker, a vegan bakery, a tailor — because of personalized ads.

“Good ideas deserve to be found. Personalized ads help you find them,” text at the end of the ad reads.

As Meta expands virtual reality features, they could also offer more ways for the company, and others in the virtual reality field, to collect data from users and target ads. Won said virtual reality could provide companies with a “rich stream of data,” not only about what users are interested in, but even information about health conditions from details as minute as a minor hand tremor.

“We don’t have instances of this happening, but it’s also not something that’s top of mind of most people when they put on a headset and have an awesome virtual experience,” she said.

With virtual reality headsets, companies could track a user’s eye movements to see what is grabbing their attention, said David Krum, an assistant professor at the California State University, Los Angeles.

“It’s a great environment for doing experiments. And so Facebook and social media [companies], in some sense, those are experiments trying to find what’s the stickiest most appealing content to people, and then promoting that through the algorithm, and then keeping people on the platform, and then you can collect information about them and then serve them ads or serve that information to your consumer companies,” Krum said.

“And they can collect even more information through a metaverse platform,” he added.

As Meta adapts to the changing social media landscape, with hurdles from increased regulation and rising competition, the company is also preparing to face a storm of economic downturn. Facebook rose to prominence on the heels of the Great Recession; now, Zuckerberg is plotting the company’s path forward to come out on top through the looming recession ahead.

“We can’t control the timing of when things will bounce back, but I’ll note that periods like this are when marketers reevaluate their budgets and are even more focused on finding the highest performing advertising,” Zuckerberg said on the call. “In the last recession, we invested in our ads business through the downturn and came out stronger on the other side. And I’m focused on making sure we do the same today.”

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