There are a lot of reasons why Mark Zuckerberg felt he had no choice but to institute a bruising wave of 11,000 redundancies at Meta.
The company behind Facebook had overextended, he said. Like many of its competitors, it believed the rise in online activity during the coronavirus pandemic was a permanent shift: that although people were forced to turn to e-commerce, video chats and online gaming because they couldn’t leave their homes, they would choose to carry on living that way once restrictions were lifted.
And so as Meta’s revenue surged, the company invested accordingly. Although trends didn’t snap back to where they were in early 2020, nor did they continue unchanged. As lockdowns lifted and in-person socialisation returned, Meta’s revenues contracted, leaving the company, with almost 90,000 employees, financially exposed.
There were other reasons offered by Zuckerberg for the job losses. A wider “macroeconomic downturn” hammered all tech stocks equally, as profit today started to look tastier than growth tomorrow in the eyes of investors facing the end of the western world’s zero interest rate policy. “Increased competition,” he said, hurt further, as did “ads signal loss”.
Zuckerberg did not name the rivals eating Facebook’s lunch. But it’s clear he was referring to competition from TikTok, a trendy app stealing users and dominating the zeitgeist, and a change of policy at Apple. In 2021, Apple limited the amount of data, or “signals”, Facebook could gather about the behaviour of iPhone users, which made it harder for small businesses to use Facebook adverts to profitably acquire new customers.
One issue repeatedly cited by Wall Street as a cause for concern was absent from the Facebook founder’s explanation for the job losses: the company’s immense investment in the “metaverse”, a loosely defined vision of a future in which people congregate in virtual worlds, accessed through virtual reality and augmented reality devices, to socialise, work and play.
In 2021 alone, Meta spent more than $12bn (£10bn) on R&D at its Reality Labs metaverse wing, and brought in barely a sixth of that in the few metaverse products it actually makes revenue from, including its Meta Quest headsets (the hi-tech goggles previously called Oculus) and the Horizon Worlds chatroom. Those losses are growing: in 2019 Reality Labs lost $4.5bn with $500m in revenue, and in 2020 $6.6bn with $1.1bn in revenue. In an earnings call in February, Zuckerberg said he expected the losses to “increase meaningfully” over 2022.
Shareholders panicked. Brad Gerstner, the founder of Altimeter Capital, a long-term shareholder in the company, wrote an open letter to Zuckerberg in October, calling on him to radically scale back. “An estimated $100bn+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards … we think Meta company should cap its metaverse investments to no more than $5bn per year with more discrete targets and measures of success, as opposed to today’s much more ambitious and open-ended strategy.”
If Gerstner’s estimate is even remotely accurate, Meta could pay every single employee who is losing their job a $9m severance fee, and still spend less than it is expected to invest in building out the metaverse business.
But Zuckerberg doesn’t care. The metaverse – a strategic priority so close to his heart that just over a year ago he renamed the entire company after it – received just one mention in his letter to employees, and it was a full-throated endorsement of his own plans. “We’ve shifted more of our resources on to a smaller number of high priority growth areas,” he said, “like our AI discovery engine, our ads and business platforms, and our long-term vision for the metaverse.”
Meta is shedding staff from its profit engines to fund a megabillion investment in an uncertain future. The baffling thing is, underneath it all, Meta remains a tremendously profitable company, with multiple megascale social networks, a best-in-class advertising business, while its upstart Chinese rival TikTok struggles into uncertain geopolitical headwinds.
It seems Facebook is not the company Mark Zuckerberg wants to run any more. “Every day you wake up and you’re punched in the stomach,” he said of his experience leading the world’s largest social network. The metaverse may be his respite from that – even if he has to fashion the future from the bones of the company he built.
