Meta/Facebook Crash

 

Turns out buying your way into the future is a bad strategy.

The biggest story this week for me was Facebook (I refuse to call it “Meta,” I’m on the fence with calling Google “Alphabet”) dropping out of the crypto game.

Facebook wasn’t first. Facebook had infrastructure. But when confronted with the concept of Facebook moving into the crypto sphere, seemingly everybody said NO WAY! This is what happens when you have a scorched earth policy towards competitors. When people have seen your trick and are now gun-shy.

We saw this with Apple and TV. The producers and distributors saw how Apple revolutionized the portable music player and smartphone markets and they decided to freeze Apple out. Just before he died Steve Jobs said he had TV figured out, could he have executed? One thing is for sure, Tim Cook could not. And trying to maintain its margins Apple has hobbled its market share. They’re giving Rokus and Firesticks away. This is why when competitors came on the market Jobs dropped prices on iPods dramatically. He wanted to own the market, and he did.

Until he destroyed the market with the iPhone. That’s right, Steve Jobs disrupted HIMSELF! (Well, Apple.) This is exactly what Clayton Christensen preached because if you don’t, someone else eventually will. And then you’re screwed.

This is what happened with Facebook.

Social media went to images, it purchased Instagram. Knowing the landscape of digital communication, Facebook also bought WhatsApp, which U.S. residents still don’t know the power of, it RULES the rest of the world. Forget iMessage. There are a couple of territories where other platforms are dominant, but really, the footprint of WhatsApp is stupendous.

And then comes Musical.ly. It was seen as for kids. Thought was it was a fad with limited appeal. It didn’t offer the smorgasbord of services that Facebook did. It was a sideshow. But then Musical.ly was sold to ByteDance and it became the MAIN SHOW!

Let’s be clear, Mark Zuckerberg started Facebook when he was in college. He had his feet planted firmly on the ground, he knew the college vibe. Furthermore, the analog blueprint had been established, just move the print Facebook online. The programming was the hard part.

And with help from savvy Silicon Valley players, Zuckerberg dropped out of Harvard and built Facebook into a monolith, all while maintaining control.

Now you’ve seen Zuckerberg on TV. Smug and self-satisfied. But in truth he’s no longer on the street, he didn’t see young kids using Musical.ly, it was in plain sight, but he MISSED IT!

What did Zuckerberg actually start? He got the idea for Facebook from the Winklevosses… In reality, his rep as a seer is not too good. This is not Steve Jobs looking into a future no one else could see and pulling a rabbit out of a hat. And, in truth, a lot of Jobs’s ideas were refinements of already existing products, but the makers of those didn’t have the knowledge, money, or savvy to blow them up into worldwide phenomena.

The tech trail is littered with broken-down companies, either out of business or sold to others. Compaq, never mind Gateway, Sun…and too many social media platforms to mention here. They were one-trick ponies, they couldn’t navigate the future. In tech legacy is irrelevant, there is no catalog, you can’t go on the road and play your greatest hits, no one is concerned with the past in tech, there’s no demand.

That’s right, Zuckerberg could have seen the potential of Musical.ly, but he didn’t. The same way MySpace didn’t see the key was to standardize the interface and get rid of anonymity.

And once something gains traction online, it can’t be beat, unless the enterprise stumbles significantly. There’s a first-mover advantage in tech, keep stoking the fire and you continue to win.

And TikTok is a standalone product, but to compete Zuckerberg made Reels part of Instagram, a crappy integration and a messing of the mind of the user. What is Instagram? Pictures or short videos? At some point you can’t cobble the past into the future, you need to start over. Which is akin to Steve Jobs getting rid of legacy ports. Maybe if Reels was a separate platform…

But ByteDance was savvy in other ways. It nurtured its creators and made it so a “nobody” could become a “somebody” overnight. Zuckerberg is hands-off when it comes to his users, as for paying them? He’s notably reluctant.

And then Facebook ran out of new customers.

Maturity, it’s a bitch. Not that you can’t see it coming. There’s a limit to how many people on Earth will subscribe to a music streaming service. You can raise the cost, there will always be new subscribers, but not in healthy numbers. Apple and Amazon are protected, their music streaming services are a zit on the tush of these companies. Whereas Spotify…music is all it has got, that’s why they went into podcasts. You either grow or you die, and if you’re not moving forward, Wall Street goes thumbs-down, and your stock crashes, like Facebook’s today.

Not that the stock price accurately reflects the present value of the company. Wall Street, especially with most of these tech companies, is legalized gambling. The stock price frequently has nothing to do with the value of the company. Then again, how stupid were investors that they couldn’t see that Zuck would hit a new user wall?

And then we’ve got Apple.

Why do people hate Facebook? The lack of privacy, you’re the product. You post all your data and pay for the privilege. Without you and your content, there is no company.

But not at Apple. It’s not an advertising model. It’s a product model. And now Apple has also gone into services, but once again, the key driver is not data and ads.

So Apple allows iPhone owners to block tracking and it’s…HEAVEN!

Zuckerberg decried this, Apple delayed its no-tracking introduction and then launched and the inevitable happened, Facebook has a $10 billion loss because ads can no longer be targeted as specifically. Hallelujah for the consumer, rats for Facebook.

And the iPhone has a 50% market share in the U.S., but much less in the rest of the world. It’s an exotic item, the margins are huge. And in truth, the iPhone has many advantages, including its vetted app store, but it never competed on price, so how long until the iPhone fades away? It’s gonna happen. It’s VHS vs. Betamax all over again. Cost is a key factor, it frequently supersedes better.

And then there are companies that can’t see the future, like RIM/BlackBerry. It could not foresee smartphones that used a hell of a lot more bandwidth and in some ways, we’re not as secure. But Steve Jobs bet on offloading a lot of web surfing to Wi-Fi. And, every single year they improve the iPhone, otherwise, it would become stagnant and die.’

As for Sony and its Betamax?

Sony threw the long ball and became a gaming company. The PlayStation revolutionized gaming, it’s just that console gaming is now having a hard time competing with internet gaming. That’s a battle that is still in the air, a victor has not been declared, it’s the reason why Microsoft wants to buy Activision. But this time, the government has seen the trick, and they may not let it happen. These tech companies are a step ahead of Washington, D.C., maybe two or three, but the blueprint in many cases is now obvious, they all want to become monopolies. Some administrations are concerned with and others are not, which is why Zuckerberg got so close to Trump, he wanted the government hands-off.

So, this saturation of customers shows that the go-go internet we’ve been privy to for twenty-five years is now mature. And when a business is mature, prices go down. And you do your best to differentiate yourself from your competitors.

You need a different kind of CEO. We first learned this with Apple and John Sculley. These tech companies don’t need managers, they need FUTURISTS! Tim Cook can run the supply chain better than anybody else in tech, but can he come up with new ideas and refine them and make them so desirable the public eats them up? Hasn’t happened yet.

Also, the future is software, not hardware. How do you compete?

And how do you compete with the youngsters on the street?

Shawn Fanning, a teenager, disrupted the entire music business. Ditto with Daniel Ek. The established players wanted nothing to do with the future, and they thought they had enough power to make sure people went their way.

But they forgot about the customer. The customer will switch on a whim. Think about what the customer wants, because that is where the world is going. When Spotify launched most customers couldn’t see they wanted streaming music. But then they experienced it and loved it!

Ditto with Netflix’s streaming offerings. Although Netflix has got the same maturity problem as Facebook, they’ve run out of new people, at least in big numbers. The market is saturated.

But at least Netflix was there first and continues to innovate and stick to its guns. Netflix drops all episodes of a show at once BECAUSE THIS IS WHAT THE CONSUMER WANTS! HBO, Apple, and Disney do not. They think they can control the customer. They use old models. Well, we drip it out week by week and we create water-cooler moments and… Huh? People don’t even go to the office anymore, never mind drink from a water cooler.

And the studios refined the movie business for profits and killed it in the process. Make fewer pictures, spend a lot to make a lot, tentpoles, with sequels… But most people didn’t want those movies. So they stopped going to the movies altogether. As for moving new pictures to streaming platforms during Covid, as HBO and Disney did…the creative community complained, they wanted what was good for THEM, they had no idea of the future.

I wouldn’t bet on Meta owning the metaverse. Because the history of the internet tells us again and again that new ideas are hatched by nimble nobodies tapped into the zeitgeist, often delivering what most people had no idea they wanted. Zuckerberg keeps telling us he’s going to rule the metaverse while he burns cash… Maybe the metaverse develops in a different way. Maybe through gaming first. Maybe it launches in a simple version with many fewer bells and whistles. Zuckerberg building for the metaverse is akin to Detroit pivoting to electric cars. It keeps saying it is and it continues to be much too slow. And Detroit thinks cars are all about hardware, whereas Tesla has proven the secret sauce is software. Did you read about that Tesla recall, for cars rolling through stop signs? THEY DELIVERED AN OVERNIGHT SOFTWARE UPDATE! Owners didn’t have to bring their cars to the shop. And during the chip shortage, Tesla’s engineers rewrote the software so they could use more generic and available chips. I don’t think this is in Mary Barra’s wheelhouse!

When you’re in control of a lumbering giant, eager to protect margins, you’re on your way to extinction. You must sacrifice now to even exist tomorrow. Like Adobe going from a sales to a subscription model. You get those free software updates over the air, your product was not immediately dated when you bought it, it’s a win-win. Except for maybe those employing legacy software. But can you even open your programs on your new computer? Tech moves forward, you may be in love with your 3G phone, but momentarily it will become completely unusable.

So Mark Zuckerberg has proven he has feet of clay. At most he was a two-trick pony. Facebook, and then buying WhatsApp and Instagram. And everybody hates him, so they’re not playing nicely with him and they’re rooting for him to lose. And he probably will.

We admire those who can do it more than once. Elon Musk with PayPal and Tesla and SpaceX. Anybody can get lucky once, but can you do it multiple times? Take multiple hit acts to the top of the chart? This is why Steve Jobs was revered, he did it over and over and over again.

Mark Zuckerberg is no Steve Jobs.

~~~

Visit the archive:   http://lefsetz.com/wordpress/


@Lefsetz  http://www.twitter.com/lefsetz

If you would like to subscribe to the LefsetzLetter

 

~~~

Previously:
FacePlant (February 4, 2022)

How Facebook F*#ked Up Its Own IPO (May 22, 2012)

Cognition, Bias & Facebook (November 17, 2016)

#DeleteFacebook? Try Taking Control of Your Facebook Account First (March 21, 2018)

Less than meets the eye at Facebook (February 18, 2012)

How to Fix Facebook (July 27, 2018)

MiB: Max Chafkin on Thiel & Tech (December 25, 2021)

Scott Galloway on The Four Horsemen: Amazon/Apple/Facebook & Google (March 15, 2015)

Galloway: Let’s Talk About Facebook (March 25, 2018)

 

Print Friendly, PDF & Email

Read this next.

Posted Under