A new generation of apps threatens Facebook’s business model. If consumers tire of its products and move elsewhere, advertisers might follow
FACEBOOK HAS always had two faces. One is the grimace of a firm that many people, in particular politicians, love to hate. President Joe Biden recently accused the social-media giant of “killing people” by spreading misinformation about vaccines against covid-19.
At its core Facebook is a giant advertising machine. Ads generate 98% of revenue. Blue is a dominant ad platform internationally, raking in some $55bn last year, estimates KeyBanc Capital Markets, an investment firm . Instagram, which Facebook bought in 2012 for $1bn, now chips in another $20bn or more, taking its share of overall ad revenues to nearly 30%, from just over 10% in 2017.
Covid-19 has turbocharged Facebook’s machine. Self-isolating American adults spent on average nearly 35 minutes per day on Blue in 2020, according to eMarketer, two minutes more than the year before. That adds up to more than 10,000 additional years of collective attention. While some firms went belly-up or cut ad spending in last year’s recession, others were born: 6.6m in America alone since the start of the pandemic. Many want a slice of the extra attention.
In the past Facebook might have bought smaller rivals, as it did with Instagram. With trustbusters looking on, it is instead placing a series of big bets. The first is on the “creator economy”, where people make money from digital works.This is an extension of its ad business, but one in which it has fallen behind. TikTok and YouTube, in particular, have been better at attracting creators who keep users glued to their screens.
Mr Zuckerberg’s grandest gamble concerns the metaverse. When he spent $2bn in 2014 to buy Oculus, a maker of virtual-reality gear, many thought he was buying himself a toy. But in recent years Facebook has made other VR acquisitions, most recently BigBox VR, developer of “Population: One”, a shooter game similar to “Fortnite”.
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