Facebook blames Apple for ad revenue decline and outlines its metaverse plans

Facebook CEO Mark Zuckerberg outlined his plans for the future of the company in the “metaverse,” which is viewed as the potential savior of the social network. Facebook is under fire in the real world after a barrage of whistleblower reports and after Apple changed iPhone rules that hurt Facebook’s ad business. On Monday, Zuckerberg defended his company’s record and gave more details about where Facebook is headed with its plans in the “metaverse”—the alternate digital economy that is taking shape in virtual and augmented reality. Zuckerberg spoke after Facebook released its third-quarter earnings report, which showed exactly how much Apple’s data changes this year affected advertising. Facebook also revealed that it would carve out a new segment in next quarter’s financial report to disclose the strength of Facebook Reality Labs, which is a segment that Zuckerberg sees as the future of the company but right now is sucking up cash. Facebook generated $28.3 billion in ad revenue in the third quarter, up 33% from the same period a year ago, but down slightly from $28.5 billion in the second quarter. Ad revenue would have grown sequentially, quarter to quarter, if Apple had not adjusted its software, Sheryl Sandberg, Facebook's chief operating officer, said on the call with analysts. Apple’s changes to iPhone iOS software are rocking the digital ad world since it adopted App Tracking Transparency. The policy has made it easier for users to decline tracking that advertisers use to follow a consumer from an app like Facebook to their website. When an ad leads to a sale outside of Facebook, the social network can’t track it and report back to advertisers, but Facebook has said it still believes its ads are working. The company just can’t detect “conversions” as clearly. Fourth-quarter ad revenue uncertainty Sandberg said that by the end of the year Facebook could recover some of that clarity in reporting back to brands, because it is developing new ways of measuring. It will be harder to develop alternate ways to target ads, however, she said. “Targeting is a longer-term challenge,” Sandberg said. Facebook is working on ways to measure and target ads that rely less on personal information shared across apps and more on artificial intelligence and encrypted data. The measurement piece Facebook can mostly work on its own, but for targeting, Facebook needs to work with other industry stakeholders, Sandberg said. Facebook execs also talked about how they are pushing businesses to set up shop on the social network with new commerce tools, and evolving the creator economy in the apps, in order to bypass Apple’s controls. The more activity Facebook keeps within the ecosystem, the less it relies on connections that lead into other parts of Apple devices, like Apple's Safari web browser. Facebook predicted that it would generate between $31.5 billion and $34 billion in ad revenue in the fourth quarter. The uncertainty is because of Apple, execs said. “We haven’t gone through a holiday season with these [Apple] changes and prices are higher during the holiday,” David Wehner, Facebook’s chief financial officer, said. Ad prices are rising throughout the digital advertising ecosystem, according to advertisers. On Facebook, the price of ad impressions rose 22% year over year in the third quarter, according to Facebook’s report. 'Digital clothes and digital tools' In the coming year, Facebook will dramatically ramp up investment in artificial intelligence, advertising fixes, and also its Facebook Reality Labs, which Zuckerberg pointed to as the next great platform. However, the metaverse won’t be ready to meaningfully make money until the end of the decade, Zuckerberg said. “We hope that by the end of the decade we can help a billion people use the metaverse,” Zuckerberg said. Facebook is spending more to bolster its efforts. The company is spending about $19 billion on capital expenditures in 2021 and it expects that to rise to $29 billion to $34 billion in 2022. On Thursday, Facebook will host Connect, a virtual reality developer summit where it reveals new products and services. It has been reported that Facebook could adopt a new name for parts of the business that fall under Reality Labs. Advertisers have said that Facebook may want to put some distance between its namesake property and the next-generation platforms under development. It’s unclear how any new identity would be applied to Facebook’s virtual reality business. Zuckerberg told people to tune into Connect on Thursday to hear more about projects like Horizon, one of the main virtual platforms within Reality Labs. Building the next computing platform will “lessen dependence” on outside platforms for Facebook’s business, Zuckerberg said. It will also open a new world of opportunity. “If you’re in the metaverse every day, then you’ll need digital clothes and digital tools,” Zuckerberg said. Meanwhile, Zuckerberg defended his company from the recent criticism that has been tearing at its legacy. In recent months, whistleblower Frances Haugen, a former Facebook employee, has talked to media and government officials about alleged mismanagement at Facebook. Instagram has been criticized for its harmful effects on teens, and Haugen’s internal information from Facebook showed the company had studied the problem but never fixed it. Haugen has also accused Facebook of intentionally spreading the most divisive information to boost activity, and that the dynamic is harmful to social cohesion. Zuckerberg was passionate in speaking out against the portrayal of his company in the press. Facebook invested $5 billion in the past year in community safety, Zuckerberg said. “I believe that’s more than any other tech company, even adjusted for scale,” Zuckerberg said. “I am proud of our record,” Zuckerberg said.

Facebook blames Apple for ad revenue decline and outlines its metaverse plans

Featured Stories