Irina Ivanova – CBS MoneyWatch
Mark Zuckerberg has a new remedy for what’s ailing Facebook: Ditch older users and refocus the company on serving Generation-Z, while encouraging them to buy virtual items in the emerging “metaverse”.
“We are retooling our teams to make serving our young adults our North Star rather than optimizing for the larger number of older people,” the Facebook CEO told investors in a call on Monday, defining young adults as those aged 18 to 29.
“Over the last decade, as the audience that uses our apps has expanded so much, we focused on serving everyone,” he added. “Our services have gotten dialed to be the best for the most people who use them rather than specially for young adults.”
Facebook has faced robust competition for young users from TikTok, which Zuckerberg called “one of the most effective competitors we have ever faced.”
At the same time, Facebook’s advertising sales, which make up nearly all its revenue, have taken a dip thanks to Apple’s latest operating system, which makes it harder for third-party app developers to track Apple users. Facebook objected to Apple’s changes and claimed that they would hurt small businesses while giving a leg up to Apple’s own advertising systems. With most users of i-devices adopting the new software in late June, those changes were the biggest challenge for Facebook’s revenue growth in the three months from July to September.
In that period, Facebook’s most profitable users — those in the U.S., Canada, and Europe — became slightly less profitable. The company’s average revenue per user dropped by about 65 cents in North America, to $52.34, and by about 70 cents in Europe, to $16.50. To counter those changes, Facebook plans to rebuild its ad-targeting tools to work with fewer data, Chief Operating Officer Sheryl Sandberg said Monday.
Facebook said its net income grew 17% between July and September to $9.2 billion, up from $7.8 billion, a year earlier. Revenue rose 35% to $29 billion, beating analyst expectations of $24.5 billion. Facebook shares added 1% on Wall Street Monday and rose another 1% to $332.43 in after-hours trading.
Despite the fallout from the Facebook Papers showing that the social media giant sometimes ignored the adverse effects of its platform on users, Facebook remains a money-making machine for millions of small businesses that rely on it to advertise. Still, Facebook executives detailed plans to roll out new product lines that will bolster the company’s ad dominance.
A $10 billion bet on the metaverse
Chief among those new product lines: The so-called metaverse, which Zuckerberg first discussed in July. Facebook said it plans to spend $10 billion to help develop a virtual-reality environment that it eventually plans to fill with virtual clothes, tools, and other content.
“The metaverse is going to be the successor of the mobile internet,” Zuckerberg said Monday, adding, “Delivering a sense of presence, like you’re right there with another person — that’s the holy grail of online and social experience.”
“We hope that, by the end of the decade, we can help a billion people use the metaverse and support a digital economy worth hundreds of billions of dollars,” he said.
As it seeks to remain current amid signs that young people have moved to other platforms, Facebook is also reportedly considering changing its name, according to The Verge. For now, the company has declined to comment on what it called “rumors and speculation.”
The company also plans to break out its Facebook Reality Labs as a separate segment beginning in the fourth quarter. This business line will include its augmented and virtual reality products along with related hardware, software, and content. Facebook expects to spend roughly $10 billion on the segment this fiscal year, it said — an investment that will grow in future years.
“It’s important to have a social experience that goes across all platforms,” rather than just “a VR social network,” Zuckerberg said. “It needs to work everywhere across our family of apps. It needs to work on the web, on the phone, on computers. There’s a lot of infrastructure that needs to get built.”