The past year has seen Mark Zuckerberg, the co-founder of Facebook, now known as Meta, experience a dramatic shift in fortunes. While he has faced public criticism before, it was a year ago when even investors seemed to have lost faith. Accusations of neglecting the core business in favor of grand metaverse dreams had driven the share price down by over 20% on the day Meta released disappointing third-quarter earnings. Mark Zuckerberg was in a precarious position.
However, over the past year, he has managed to reclaim his standing. Meta’s core business, engaging 3.1 billion people daily through Facebook, Instagram, and WhatsApp, and providing advertisers with access to their attention, has made a strong comeback. In its latest quarterly report, the company announced revenues of $34.1 billion for the third quarter, reflecting a 23% year-on-year increase. This upturn marked the sharpest surge since the digital boom during the COVID-19 pandemic. Net profits more than doubled to $11.6 billion. Meta’s share price has surged by 250% since its lowest point last year.
In the public eye, Mark Zuckerberg’s achievements in the business world often take a back seat to other matters. The media has been more interested in his recent martial arts pursuits, the hypothetical cage match with Elon Musk that never took place, and public disputes, such as the lawsuits filed by numerous U.S. states on October 24th. These legal actions accused Meta of intentionally fostering addiction to Facebook and Instagram. Yet, in the span of a few months late last year, Mark Zuckerberg made two significant business decisions that were extraordinary due to their humility and adaptability. This was especially noteworthy since he controls 58% of the company’s overall voting rights, which places him in a powerful position where he does not necessarily have to respond to shareholders’ demands.
In response to mounting investor pressure, Mark Zuckerberg executed one of the swiftest pivots in the history of the tech industry. Within two weeks of the third-quarter setback, he significantly curtailed Meta’s spending plans, implemented cost-cutting measures, and reduced the workforce. Simultaneously, he initiated an internal revolution that aimed to utilize generative artificial intelligence (Gen AI) to revitalize Meta’s core business. These maneuvers shed light on Mark Zuckerberg’s leadership style and may ultimately validate his faith in the metaverse.
Sources close to Mark Zuckerberg suggest that when he realized he had infuriated investors, he remained composed and methodical. Adviser Nick Clegg described how Mark Zuckerberg prefers to approach issues like an engineer, breaking them down into their constituent parts and devising a solution, rather than reacting impulsively to others’ pressures. In this situation, Mark Zuckerberg recognized the disparity between his long-term vision and the short-term horizons of investors. Consequently, he decided to “cut his cloth accordingly.” Yet, he retained most of his long-term investment plans, emphasizing that these predominantly pertained to artificial intelligence (AI), not the metaverse. This emphasis would prove prescient when ChatGPT emerged a few weeks later.
Meta had spent years building its AI infrastructure, seeking ways to leverage AI to enhance user engagement and streamline its advertising business while developing mixed-reality headsets for the metaverse. It soon became apparent that they possessed all the necessary elements—sufficient data centers, graphics processing units (GPUs), and experts—to harness Gen AI. By February, they had identified their focus, and by July, they had made their Llama 2 large language model available to developers for free. In September, they announced their first Gen AI-related products, including smart spectacles. Mark Zuckerberg himself immersed in the technical aspects, reigniting his competitive spirit. He appeared rejuvenated working on new technology instead of the arduous task of cost-cutting.
Mark Zuckerberg’s decision to make Llama open-source had the transformative effect of turning him from Silicon Valley’s pariah into its hero. Leigh Marie Braswell of Kleiner Perkins, a venture capital firm, noted that startups “wholeheartedly praised” the move, which significantly assisted many in developing AI-related enterprises. Gen AI could be as transformative for Meta as it is for industry giants like Microsoft and Alphabet, the parent company of Google, whose initial investments in proprietary large language models have garnered considerable attention.
A prime application of Gen AI is to increase user engagement. Meta is introducing chatbot avatars on its social media platforms, with the aim of prolonging user interaction and enabling businesses to engage with customers through messaging apps. Although some users find these avatars somewhat mundane, Meta remains cautious about AI’s “hallucinations.” Nevertheless, the potential is evident. These avatars, such as Jane Austen, which emulates the author’s wit, can be used for various purposes. When asked to describe Mark Zuckerberg, Jane Austen characterizes him as “bright, driven but perhaps a bit too fond of his own ideas.” She depicts the metaverse as a “virtual world where people can escape reality and live their best lives. Dear me, how…unromantic.”
In the near term, the most compelling application of AI is in advertising. Apple’s limitations on Meta’s ability to track user data across third-party apps on iPhones forced the company to undertake a comprehensive overhaul of its advertising business. Meta has employed AI to model user behavior instead of tracking it, and its introduction of ad technology named Advantage+ has been quite effective, automating the creation of ad campaigns. Advertisers have responded positively, with J. Crew Factory reporting a nearly seven-fold increase in return on ad spending.
Gen AI has the potential to further automate advertising. Meta recently launched tools that allow advertisers to quickly experiment with different backgrounds and wording. While these are initial steps, they are seen as the beginning of a promising journey. According to Andy Wu of Harvard Business School, these developments could lead to a “gold rush.” He contends that by incorporating Gen AI into ad campaigns, Meta could reap as many benefits from the technology as Nvidia, the leading producer of GPUs.
Nevertheless, advertisers harbor certain concerns. An ad industry professional at AdWeek NYC likened Meta’s AI-assisted campaigns to “black boxes” where Meta controls all the data. This grants the company significant control over a brand’s identity, which could be tarnished if the AI malfunctions. Additionally, there are concerns about AIs resorting to questionable tactics to boost engagement on Meta’s social networks, potentially harming brands by association. Recent controversies involving fake images related to the conflict in Gaza on social media illustrate the persistent challenges in this realm. Not everyone is convinced by Nick Clegg’s assertions that Meta is prepared for these issues due to its years of investment in safety and platform integrity.
Despite these concerns, some investors remain skeptical. Mark Mahaney of Evercore ISI, another investment bank, believes that 95% of investors would prefer Mark Zuckerberg to allocate fewer resources to the metaverse. Many are cautious about investments in hardware, such as virtual reality headsets, which tend to yield lower margins than digital products
