Meta's cold war with Apple over privacy is coming to a critical moment
- Meta is in a "year of efficiency," but its metaverse ambitions remain a priority.
- The metaverse isn't a solution to the challenges in its ads business due to Apple's iOS changes.
Many of the problems at the company are also affecting its peers in the tech industry, especially Google. Inflation, higher interest rates, and an uncertain global political situation have all led companies to slash their online advertising budgets as they hunker down for the possibility of recession.
But Meta has a much bigger problem: Its so-called family of apps, including Facebook, Instagram, and WhatsApp, are "at the whim of Apple," in the words of a top Meta exec in a recent internal posting reported by Recode.
In 2021, Apple changed its iOS operating system to limit the abilities of apps to track user behavior. In February of 2022, Meta projected that the changes would cost it $10 billion, on account of how much more difficult it's become to target ads to iPhone users. Apple CEO Tim Cook, for his part, has criticized Facebook's business model several times over the years, with Apple going so far as to declare privacy a "human right."
It's clear from Meta's most recent earnings report, and its drive for efficiency and cost-cutting, that this cold war with Apple is taking its toll on the bottom line. And while Zuckerberg's ongoing drive towards virtual reality and the so-called metaverse has the potential to offer Meta an escape hatch from Apple in the form of a platform of its own, it's not clear when or how those still-nascent ambitions will come to fruition.
"As we look ahead to whenever the next computing platform is, they want to move further up the stack," Bernstein analyst Mark Shmulik said. "They do want to be participating in the application layer. They do want to be the operating system. They do want to own the hardware the way that Apple does."
Until then, the situation will continue to escalate unless Meta makes much needed changes to its ad strategy, particularly so it's not reliant on another company's operating system or on tracking users data, industry experts told Insider.
"As long as they're riding on top of iOS, there's a risk that they could wake up and Apple can make another privacy change," said analyst Gene Munster of Loup Ventures. "I think that's probably why there's such bad blood between the companies is because Facebook just knows that they can navigate these things, but they can't avoid continuing to get hit."
Meta needs a new strategy for advertising if it's going to survive
Over the last year, Meta has been focused on building better tools to make advertising decisions without tracking users. That's a strategy it needs to continue, Munster said. That includes using AI to help advertisers make decisions, which the company talked about on its recent earnings call.
"That's what this year is about for Meta is to continue to build better tools to minimize the risk that they'll have from Apple," Munster said. "And I think this is a big year for them because they've been working on it hard for a year, but they still haven't gotten there."
Additionally, as competition rises in the ad space, with players like Amazon gaining traction now and Apple itself looking to build an ads business, it is more important than ever for Facebook to have a new strategy, analysts said.
Focusing on the metaverse isn't a complete solution to this problem either, some analysts warn. People aren't yet going to spend as much time in a virtual environment as they do on mobile devices, Carolina Milanesi of Creative Strategies said. So Meta is right to focus on it, but it should not be in lieu of innovating on its main advertising business, she said.
What Meta needs to think about as well, is what value it can provide to users by asking to track their data, Milanesi said. Right now users don't see any value in allowing Facebook or Instagram access to their data, but if they can change that perception it would also solve some of their hurdles with iOS privacy changes.
"If Facebook gave a reason for consumers to share the data, because the value, the return on investment of me sharing my data was so obvious and important to me, I would do that," Milanesi said.
Ultimately, Facebook needs to rethink how it advertises to users, without needing to track their data and without being reliant on another company's operating system, while adhering to changing privacy laws. It may already be on the path to success there, Bernstein's Shmulik said. Every year there's been a new challenge in the form of regulation like CCPA in California or Europe's GDPR, he said.
"It's forced Meta to move so quickly to building the workarounds, not just to accommodate Apple's changes, but really where it sees the state of digital advertising data use going," Shmulik said. "I'd actually argue that their ads product now has increased its lead over some of their competitors."
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