In the 2010 hit movie, The Social Network, which was loosely based upon the early years of Facebook, Mark Zuckerberg’s character argued against selling ad space on the infant Facebook platform. Referencing how “uncool” Mountain Dew ads would be for users, he went on a brief diatribe about how advertising would drive away users and Facebook needed to be “cool” in order to be popular. And while “Ad Free” lasted at Facebook for about three years, we all know that the need for advertising revenue won out—eventually becoming the core of Facebook’s business model. And it worked incredibly well for a long time, however, after reporting dismal third quarter earnings this past week — in large part due to declining ad revenue — it’s clear that the advertising strategy that once worked for the social media giant needs some rethinking.
Meta’s Stock Tumble
In the last 18 months, Apple has changed the online advertising game. By giving users the ability to opt out of tracking in apps and mask their email addresses when signing up for new services, Apple severely dampened the third-party ad market. Facebook has been taking hit after hit ever since. Last October, Meta stock dipped 26% after David Wehner, CFO, announced that the company anticipated losing more than $10 billion in sales revenue. After delivering full year revenue in January, the stock fell another 32% in February of this year.
Last week, Meta released another mediocre quarter of earnings. Profits are down as costs continue to rise. Revenue projections were missed, but surprisingly not as bad as I anticipated. But the big news, is ad revenue is down. The average price per ad is down 18% year over year. The stock price is down almost 29% as of close of market yesterday and perhaps most worrisome is the metaverse-centric strategy that the company is implementing that has led to rising costs, inflated headcount, and an uncertain path to meaningful revenue.
Facebook’s Ad Dilemma
Facebook’s ads platform, including Instagram, has long been its bread and butter. With personal information scraped from multiple sources across the web, a brand could target hyper-specific audiences and they were willing to pay for it. Apple’s push to deliver better consumer privacy has upended Facebook’s ads game across its portfolio and it’s clear that the company hasn’t figured out an answer yet.
Adding to the struggle is the fact that younger generations aren’t on the platform. Facebook is no longer “cool,” despite Zuckerberg’s desire. And it’s not just Facebook that’s being impact. Snap reported a 25% dip in ad revenue earlier this year. Gen Z and Gen Alpha are going elsewhere — and taking the potential ad revenue with them.
TikTok has shifted a lot of advertisers focus — with good reason. With 80 million monthly active users on the micro-video app in the US, an estimated 60% are between 16-24. For Snapchat, only 39% of their audience is in the same age range. On Facebook, that number is a measly 18%. The next few generations, who have a large buying power, are not on Facebook — and likely aren’t coming back unless there are massive changes.
I’m sure that’s where Zuckerberg and company are hoping that the bet on the metaverse pays off, which I do believe will be material in the next several years, but in the short term, it leaves more questions than answers, and has analysts, investors, and others looking on at the company wondering if a turnaround can happen soon enough.
Apple Looks Recession-proof
On the other side of the Big Tech spectrum, Apple had a huge quarter, blowing estimates out of the water. Earnings were up 7% year over year. Most of Apple’s revenue came from the consumer section with iPhone sales up 10% in the quarter, the new iPhone actually missed expectations but surprises in areas like the Mac covered any shortfall and led to another rock-solid result for the company. With regards to the iPhone 14, despite its newness, and the holiday season, those numbers are expected to taper off, now that the “new iPhone” fever has died down. However, it’s still impressive to see how much revenue can still be generated by a device that only had incremental changes compared to its previous model. Maybe it’s the promise of privacy that is wooing users or perhaps it’s the fact that Apple is still “cool” in the eyes of its cult following — we can only speculate. But the fact remains: Apple is riding high in the face of the recession and the company continues to prove that the upper echelon of consumers is still spending to stay up to date with the newest technology.
Subscription Increases but Still No Ads
Aside from earnings, Apple also announced that it will increase its subscription prices. Services, which includes subscriptions, accounts for a little over one-fifth of Apple’s overall revenue. Individual subscriptions like AppleTV+ and Apple Music will increase $1 and $2 per service based on plan levels. Apple One tiers will also see an increase. This is the first time in the U.S. that Apple has increased the prices. Apple has stated that the increase has is to give writers and singers more earnings per stream. But it will also be something to monitor when looking at future revenue to see if it has an impact.
TikTok has shifted a lot of advertisers focus — with good reason. With 80 million monthly active users on the micro-video app in the US, an estimated 60% are between 16-24. For Snapchat, only 39% of their audience is in the same age range. On Facebook, that number is a measly 18%. The next few generations, who have a large buying power, are not on Facebook — and likely aren’t coming back unless there are massive changes.
I’m sure that’s where Zuckerberg and company are hoping that the bet on the metaverse pays off, which I do believe will be material in the next several years, but in the short term, it leaves more questions than answers, and has analysts, investors, and others looking on at the company wondering if a turnaround can happen soon enough.
Apple Looks Recession-proof
On the other side of the Big Tech spectrum, Apple had a huge quarter, blowing estimates out of the water. Earnings were up 7% year over year. Most of Apple’s revenue came from the consumer section with iPhone sales up 10% in the quarter, the new iPhone actually missed expectations but surprises in areas like the Mac covered any shortfall and led to another rock-solid result for the company. With regards to the iPhone 14, despite its newness, and the holiday season, those numbers are expected to taper off, now that the “new iPhone” fever has died down. However, it’s still impressive to see how much revenue can still be generated by a device that only had incremental changes compared to its previous model. Maybe it’s the promise of privacy that is wooing users or perhaps it’s the fact that Apple is still “cool” in the eyes of its cult following — we can only speculate. But the fact remains: Apple is riding high in the face of the recession and the company continues to prove that the upper echelon of consumers is still spending to stay up to date with the newest technology.
Subscription Increases but Still No Ads
Aside from earnings, Apple also announced that it will increase its subscription prices. Services, which includes subscriptions, accounts for a little over one-fifth of Apple’s overall revenue. Individual subscriptions like AppleTV+ and Apple Music will increase $1 and $2 per service based on plan levels. Apple One tiers will also see an increase. This is the first time in the U.S. that Apple has increased the prices. Apple has stated that the increase has is to give writers and singers more earnings per stream. But it will also be something to monitor when looking at future revenue to see if it has an impact.
Right now, it feels like a downhill slide — Meta’s focus on the Metaverse should be more of an “And” and less of an “Or” for the company’s long-term vision. Competing with Tik Tok, winning the younger demographic with Reels, and Instagram, while adding to its e-commerce are the short-term product plays. All the while, right sizing, focusing on getting back to growth, and at least trying to be clear on your mission so your users and shareholders know what they are getting behind.
Furthermore, Facebook’s invasive advertising made it vulnerable to attrition. Users, especially in the younger demographics, left the platform. Apple exposed this when it put privacy first, effectively shining a spotlight on the black magic tactics Facebook was using to attract advertisers while also directly impacting its revenue streams.
Apple on the other hand continues to put consumers and privacy first — even if it’s only in a few segments. It’s marketing genius that’s paying off. While Tim Cook’s comments on the earnings call indicate that growth in the next quarter might be tougher to come by, it’s apparent the contrast between these companies where one is steady and well positioned to deal with even a longer than expected recession while the other has become far more vulnerable than anyone could have expected just one year ago. Further solidifying the fact that consumers want to be a priority and the businesses that don’t deliver, even those that once led an entire industry, might not last.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.
The original version of this article was first published on Forbes.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
