For the veryfirst time in its history, Facebook is in decrease. Has the tech giant started to fallapart? | John Naughton

Facebook was much in the news last week, although you might not understand that since it hasactually been relabelled Meta in the hope the bad vibes associated with its maiden name would slowly fade from public memory. (Google attempted the verysame stunt with Alphabet and that hasn’t worked either.)

For a modification, though, Facebook’s mostcurrent minute at the leading of the news program had absolutelynothing to do with scandals and whatever to do with its monetary results, which were so suddenly bad that the shares dropped 25% at one point, taking $240bn (£177bn) off its market worth, which in turn led to a 2% drop in the Nasdaq index.

Given that Facebook has hitherto been a licence to print cash, so much so that at one phase (in 2019), when it was fined $5bn by the Federal Trade Commission, its shares infact went up as Wall Street signedup that the seemingly enormous great was really the comparable of a fleabite on an elephant.

But this time was various. Why? Three aspects stood out from reports of Mark Zuckerberg’s conference call with stock market experts: the effect of TikTok; Apple’s relocation to need iPhone users to permission to being tracked by marketers; and the discovery that the hitherto unstoppable development in the number of Facebook users hasactually stalled.

Zuckerberg’s newfound fixation with TikTok should have puzzled lotsof observers. After all, TikTok is not a social network. It’s a service that hosts short-form user videos, from categories such as tricks, stunts, techniques, jokes, dance and homeentertainment. It is owned by the Chinese business ByteDance, is comprehended by noone over the age of 40 and hasactually taken the world by storm. As a type of Chinese cultural imperialism, it makes Xi Jinping’s belt-and-road effort appearance incompetent.

So why is it keeping Zuckerberg awake at night? The response is that TikTok caters remarkably to a market group – so-called young grownups – that Facebook, with its aging demographics (parents and grandparents), doesn’t appear to serve well any more. This describes its passion to re-energise Reels (its ridiculous effort to simulate the short-video category) and to reprioritise young grownups in its other offerings. But the genuine issue for Facebook is that TikTok is monopolising its users’ attention, which is where the cash for monitoring industrialism comes from.

As Ben Thompson, the veteran tech expert, puts it: “The issue for Meta is that its organization isn’t based on appearing material from your buddies; it’s based on engagement and serving advertisements, which indicates any service that inhabits your time and attention – and TikTok inhabits a lot of it – is a essential hazard.”

The 2nd source of issue for Facebook is the effect of Apple’s “app-tracking openness” (ATT) function, presented last year with variation 14.5 of its iOS mobile operating system. This needed iPhone users to provide specific permission for user-level and gadget ID-based tracking by apps. Not remarkably, users decreased in droves. And the effect for Facebook has now endedupbeing clear – in the type of $10bn in lost marketing income. That’s 8.5% of the business’s 2021 earnings, however, more considerably, a quarter of its general earnings for the year.

It’s simple to see why results like these may lead financiers to reevaluate their stock portfolios. But Facebook has had wobbles priorto and recuperated. As a business, it has huge resources of money and skill. Given time, it may be able to discover a method of tempting young grownups away from TikTok and of browsing round Apple’s ATT. But for anybody who takes a longer-term view of these problems, the huge story is that the business’s user base might have stopped growing. The figures exposed last week program that the number of everyday active users fell by 500,000 and that the numbers of month-to-month active users appears to have levelled off at 2.91 billion. If this is the start of a pattern, it’s truly considerable.

Why? Basically it’s all about network results. Way back in 1990, Bob Metcalfe, the co-inventor of Ethernet, developed a “law” that states the worth of a interactions network is proportional to the square of the number of linked users of the system. This law hasactually driven every networking system on the world and utilizing it has constantly been the objective of business creators.

The technique was to drawin users rapidly (by not charging for services) and to get to the point where user numbers are huge sufficient to make it really tough to break into the market. Facebook reached that point long ago and if you desire a procedure of its power at the minute, shot working out what the square of 2.91bn is.

The factor the network impact is so effective is that as long as the number of users is increasing, the business is riding a virtuous circle. The more users it has, the higher the reward for brand-new users to indication up. From the starting, driving development in the number of users hasactually been Zuckerberg’s bypassing fixation. It’s why he has constantly turned a tin ear to the voices of care when the business ran into scandals and charges of triggering social damage.

But network impacts work both methods. If user numbers start to decrease, then the virtuous circle allofasudden turns vicious, leading to a down spiral. Maybe this is what TikTok is currently doing to Facebook’s Instagram, for example. Zuckerberg is clever sufficient to understand his position as master of the existing universe might be temporal. Sic transit gloria and all that. Which might discuss why he prepares to be master of the coming metaverse.