Between Here and The Metaverse

Between Here and The Metaverse

Facebook needs to build a bridge between its present product portfolio and a Metaverse-centric future.

iOS users began to opt out of iOS app tracking when iOS 14.5 was released in April 2021 as part of Apple’s App Tracking Transparency policy. iPhone, iPad, and Apple TV apps are required to request users’ permission to track their activity across multiple apps for data collection and targeted ad purposes (click HERE for opt in rates to date). Apple’s privacy policy has impacted all apps on the App Store, most notably Facebook. Pre release of iOS 14.5, Facebook and other apps could track individual users and incorporate user-level data into targeted ad programs sold to ad buyers. Once users opt out on iOS (see screen shot below), their user-level data is no longer tracked/collected and those users become part of a cohort of users where the group’s data is far less granular and therefore far less valuable to ad buyers. This iOS change has obviously had a negative impact on ad-driven business models from companies such as Facebook (now Meta Platforms). What should Facebook do to replace this lost revenue?

iOS App Tracking button that enables personalized targeted ads.

Facebook founder and CEO Mark Zuckerberg has already chosen his/FB’s path – the metaverse. We believe that VR-based gaming is the on-ramp to the metaverse. This holds true not only for Facebook, but also for Microsoft, Apple and Google. In the case of Facebook, this means the company’s VR hardware is at the center of its metaverse strategy.

However, our view is that it will be at least a decade before VR and the metaverse pay significant dividends for Facebook. The company needs another arrow in its quiver. Facebook should look to its user base – particularly small business users – to capture its next significant revenue stream. We believe Facebook has a multi-billion dollar revenue opportunity (primarily subscription revenue), within its installed user base. In February, Facebook closed its acquisition of Kustomer (announced in November 2020), which is a nice strategic fit (Kustomer plays in the broadly-defined CRM space). There are other acquisition targets across CRM, online marketing, analytics and billing that would make sense for Facebook to acquire. We know this is easier said than done, especially given that Facebook will receive scrutiny from Lina Khan’s FTC as was the case in closing the Kustomer acquisition. Further, it is unfortunate that Facebook did not pursue acquisitions more aggressively in 2020 and 2021 when its currency was inflated (FB shares are off more than 40% year-to-date).