Key points:
- Facebook – Meta as it is now – faces an advertising problem
- The company is an interstitial layer in the stack
- That means it doesn’t control the entire environment
- How To Buy Facebook Shares
Meta Platforms Inc (NASDAQ: FB) or as most of us still think of it Facebook, faces a technological problem. This is the fact that it is a layer, an interstitial, in the software stack. That’s rather a mouthful but what is meant is that it is not fully in control of its environment. This leaves it open to problems if other people change one or more layers of their software above or below it in the full stack of applications and code that bring us the full Facebook experience.
It is exactly this that produced the around 30% drop in the Meta stock price these past few weeks, as the implications of Apple’s change to their part of the software stack became apparent. The news from yesterday is that Google is going to do something similar to what Apple has done. Meta is down 3% on that news.
The majority of Facebook access is now on mobiles. That means that what can be done by Facebook depends to a certain extent on what Apple’s iOS and Google’s Android allows Facebook to do. At which point we need to understand the economic model here. Forget the cat pictures, the metaverse and all that, the economic model.
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Near all of Facebook’s revenue is from advertising. The price that is paid for each advert depends upon the value, to the advertiser, of the person being advertised to. That means tracking us users as we move across the internet so that our interests can be compiled and so we get shown ads that are or at least might be close to our interests.
Facebook generally does sell out its ad stock and is likely to continue to do so. But there’s a vast price difference between a generic ad being shown to some generic population of people and a specific one to those who are known to have this specific interest. Like a 10x price difference, sometimes a 100x price difference.
So, Facebook revenues depend some on how many ads it can sell, how many pages it serves with ads upon them. But being able to track users so as to be able to increase – by slicing and dicing the population – the price charged for specific ads is the very core of the economic proposition.
Which is exactly what is being threatened by Apple’s changes to tracking in iOS and now Google in Android. Google is saying that this will all take time, there will be good warning, it’ll work with other companies etc. But this does have the possibility of taking Meta and its economic model and cutting it off at the knees.
That’s possibly a little dramatic, maybe even overstated, but that is the worry here. And that’s why there is volatility in Facebook, Meta, stock. Volatility that might well continue until there’s certainty about how this is going to work out.
