December 5, 2021

So, why is Facebook really renaming itself to Meta?

Funny how so few people seem to see what game the company is actually playing.

So, Facebook calls itself Meta now and everyone is busy making either fun of Zuckerberg’s video announcement, parroting its message and/or speculating what this new “Metaverse” is going to be. Mission accomplished, I’d say. Contrary to popular belief, there is no grand vision for a next big thing and the Metaverse is just vaporware, spun around Occulus VR for plausibility, with the intent of distracting from a lingering problem: Facebook (the platform), Meta’s cashcow, is slowly dying.

Looking at the bigger picture

Anyone still remember the IPO in 2012? It was a fiasco. Back then people were flabbergasted how a “website” could possibly be worth $104 billion. (Un)Surprisingly, during the first weeks of trade, no one wanted the shares and those who did gamble on them lost big time. In the end only massive intervention support saved Facebook from becoming a penny stock. A lot of people got very angry and a lot of lawsuits were filed. So, why was the company so massively overvalued in the first place?

Facebook is a matchmaking service - if you want to sell, it finds you buyers and charges a referral fee. The fee is marginal, meaning match making has to be done on a scale. The larger the userbase, the more deals can be brokered and the more referral fees can be earned. However, back in 2012, Facebook already had a bad reputation and people weren’t joining on their own any more. At least not on the desired scale. So, in order to still grow, the social network turned to advertising itself. But once it started paying for people to sign up, those accounts became an investment. Investments count towards a company’s value and since Facebook prides itself of reaching billions of people, the value of the account database instantly dwarfed everything else, the company owned.

Dishonestly exaggerating it’s reach by counting fake profiles, bots and test accounts as active users was useful in the years before the IPO to get new users and advertisers on board. But it also inflated the network’s market value, leading to the problem of investors not wanting to buy overvalued shares. Worse yet, investors generally expect the values of their shares to rise. But with the account database being the determining factor, the only way for Facebook to significantly grow in value is to massively gain new users. Telling investors that there is potential for growth, while, at the same time, telling customers and users that they could already reach everyone and their grandma are two mutually exclusive promises. Either everyone is connected or there is room for growth. So, where were those new users suppose to come from?

Human populations are not static. New children are born all the time, so it would have been possible to produce growth by recruiting the next generation. This would not have been a sustainable solution as existing users sooner or later age out, but it would have solved the immediate problem. Only, it didn’t. Facebook fell out of favour with the young generation. After all, its primary mechanism of engagement is sharing ones personal live and what teenager would want to do that on a network where he can be followed by his parents?

Desperate for new users and having depleted its growth potential in the western world, Zuckerberg turned to the developing countries and went one step further than advertising there by striking a deal with local mobile carriers: the free basics program would provide internet access for free. The catch here being that only a few selected sites would be included in the plan. Of course, someone who can’t afford to pay his phone bill will likely not buy things online. Nevertheless, he counts as an active user and therefore increases share value, even though he’s now so highly subsidized that he will never turn a profit.

In a nutshell, with Free Basics, Meta started running a form of a ponzi scheme in developing countries, where it takes investor money to simulate growth (ironically by building a human bot net), but at the cost of substance. It can end in two ways:

  1. Meta runs out of growth potential in developing countries as well.
  2. Investors realising that their gains are artificial, that their money es used as leverage against themselves and that they have been investing into an investment that is only draining money and was never meant to be profitable.

Either way, the immediate reaction would be to ditch stock. When that happens, it is not a good idea to stick around and wait for the cardhouse to collapse on itself, much less be responsible for it.

And rebranding to Meta is going to help, how?

The plan is not to grow beyond the original product, but to eventually cut ties with it. Rebranding is just the first in a series of steps to slowly phase the social network out into a separate legal entity that is then run by a skeleton crew and can happily implode at the fullness of time without dragging Meta into the abyss as well (the profits till then, of course, still go to Meta as the spin-off will be forced to take over the account database and other assets on credit, indebting itself for life). If things to real well for Zuckerberg, an antitrust lawsuit will hit and Meta gets broken up forcefully, saving him the trouble of coming up with a smoke screen explanation himself.

Meta Platforms Inc. is simply a vehicle for temporarily owning and ditching social networks once they go critical.