The Morning Dispatch: Can Virtual Reality Restore Facebook’s Dominance?

Happy Friday! We don’t care how many they make or how brazen a money grab it is, we will always go to the theater to see a new Jurassic Park movie.

Quick Hits: Today’s Top Stories

• The Bureau of Labor Statistics reported Thursday the Consumer Price Index increased 0.6 percent from December to January, and 7.5 percent year-over-year. The latter figure represents the fastest annual inflation rate since February 1982, leading many market participants to expect a 50-basis-point interest rate hike from the Federal Reserve next month.

• The Labor Department reported Thursday that initial jobless claims decreased by 16,000 week-over-week to 223,000 last week.

• Omicron continues to wane in the United States, with the average number of daily confirmed COVID-19 cases falling 65 percent over the past two weeks. Daily COVID-19 deaths—which have been a lagging statistical indicator throughout the pandemic—appear to have peaked, and have decreased about 15 percent over the same time period.

• The Senate voted overwhelmingly on Thursday to pass the bipartisan Ending Forced Arbitration Act, which prohibits companies from dealing with workplace sexual assault and harassment claims through an often secretive forced arbitration process. The bill’s proponents credited former Fox News anchor Gretchen Carlson for building momentum for the legislation, which White House officials signaled President Joe Biden will sign into law.

• Russia and Belarus began joint military exercises in Belarus on Thursday that are expected to run through February 20. Citing increased pressure from NATO, Kremlin spokesman Dmitry Peskov said the drills—which Russia and Belarus conduct regularly—“may be on a larger scale than before.” With as many as 30,000 troops participating, U.S. and NATO officials worry the exercises could serve as a precursor to an invasion of Ukraine.

• Anti-vaccine mandate protests in Canada continue to expand, with truckers blocking or severely restricting traffic flow at U.S.-Canada border crossings in Manitoba, Ontario, and Alberta. Several car manufacturing plants near the border have cut production in recent days due to parts shortages caused by the blockades.

Is Facebook a Sinking Ship?

There’s a reason companies agree to shell out more money than most people will make in a lifetime to buy 30 seconds worth of airtime during the Super Bowl every year. “If you’re looking to reach 100 million people in an evening, there’s really only one place you can go,” NBCUniversal ad executive Dan Lovinger told reporters last month. Whatever message a business decides to promote in its commercial, you can be sure a lot of thinking went into it. 

That’s what makes the campaign Meta (the artist formerly known as Facebook) rolled out yesterday so strange:

Disclaimer: The Dispatch is a participant in Facebook’s fact-checking program.

If it’s too early in the morning for blaring music and flashing lights, we’ll sum it up for you. The 60-second spot starts out with a band of animatronic creatures playing Simple Minds’ “Don’t You (Forget About Me)” to a cheering crowd at a Chuck E. Cheese-style arcade. The arcade goes out of business, and the band’s singer (a dog) finds himself in a trash compactor at the dump until a woman salvages him and sets him up in a science museum. As the museum is closing, a patron puts one of Meta’s Quest virtual reality headsets over the dog’s eyes, transporting him into the metaverse, where he reunites with his old bandmates. Old friends. New fun.

The ad had to have been pitched and created months ago, but it’ll air at an awkward time for the company. Meta has shed 30 percent of its value—more than $250 billion—since February 2, when a dismal Q4 2021 earnings report spooked investors by painting a picture of a sinking tech giant fumbling around for a life preserver. 

For the first time in the company’s 18-year history, the number of people using its main Facebook platform every day declined quarter-over-quarter. Dave Wehner, the company’s chief financial officer, braced investors for an expected $10 billion revenue hit in 2022 from Apple’s new “App Tracking Transparency” tool that allows iOS users to block companies like Facebook from snooping on their digital lives in order to better target them with advertising. Facebook founder and CEO Mark Zuckerberg noted that “people have a lot of choices for how they want to spend their time,” adding that apps like TikTok, owned by the Chinese company ByteDance, “are growing very quickly.” 

It’s worth noting, of course, that most companies would kill for a “disappointing” earnings report by Meta’s standards. Approximately 2.8 billion people use one of its core products—Facebook, Instagram, Messenger, WhatsApp—on any given day (3.6 billion use them at least once a month), and the Facebook-specific decline in daily active users was from 1.93 billion to 1.929 billion. Its Q4 2021 profits were smaller than its Q4 2020 profits, but the company still netted … $10.3 billion in the last three months of the year. Its profit for all of 2021 increased 35 percent from 2020, to nearly $40 billion.

But growth has always been the name of the game for Facebook, and it’s just not seeing it anymore. With roughly 45 percent of the world’s population interacting with the company at least once a month, it may have bumped up against the upper bound of its spread. And barring something drastic, the users it does have are going to become less and less valuable in the coming years: They’re disproportionately older (internal Meta research published by The Verge last year found most young adults “perceive Facebook as a place for people in their 40s and 50s” and find the content there “boring, misleading, and negative”) and the evolving privacy landscape—from Apple’s tweaks to new data protection laws in Europe—will hinder Meta’s ability to wring as much advertising revenue out of them as it’s used to.

“With Apple’s iOS changes and new regulation in Europe, there’s a clear trend where less data is available to deliver personalized ads,” Zuckerberg said on last week’s call. Meta officials claim small businesses who rely on advertising to reach customers are the real victims of Apple’s privacy push, but approximately 97.5 percent of its own revenue in 2021 came from selling highly targeted digital ads.

In a sector as dynamic and innovative as tech, it’s rare for a company to sustain dominance for  long. General Electric is still around, but it’s a shell of its former self. There was a time in the not too distant past when Cisco Systems, Hewlett-Packard, IBM, Xerox, and Dell were considered some of the most powerful industry players. Businesses are lucky to make it big with one or two key innovations or technologies, but their success often prevents them from being nimble enough to pivot to the next big thing. Apple—with personal computers in the 1970s and 1980s and smartphones in the mid-2000s—is one of a handful of notable exceptions.

Facebook’s key innovation was the News Feed. It wasn’t the first social media site—MySpace, Friendster, SixDegrees, and LinkedIn all came before it—but it was the first to compile friends’ posts and updates into one chronological, and eventually algorithmic, timeline. It changed how the internet operates. But the company’s innovation track record since then, as tech columnist Farhad Manjoo notes, has been spotty, to say the least. Instagram and WhatsApp were acquisitions. Stories and Reels are blatant Snapchat and TikTok ripoffs. Many of the new products it tried to create itself—Beacon, Slingshot, Paper, and most recently, Diem—have failed spectacularly, and heightened antitrust scrutiny has more or less foreclosed what has historically been one of Meta’s most effective growth strategies: Buying potential competitors.

All of which brings us back to this weekend’s Super Bowl ad. 

When Facebook was rebranded as Meta back in October, many saw it as a ham-fisted attempt to distance the company from the numerous scandals that erupted following allegations made by a whistleblower about teen mental health, hate speech, and much more. Given the timing, it may have been.

But Zuckerberg’s pivot to the metaverse—futurists’ term to describe a unified virtual and augmented-reality world—is very much real, as last week’s earnings report demonstrated. The company plowed $4.2 billion into the project in the last three months of 2021—research and development, hiring engineers—a 48 percent increase in such expenses from Q3. For the full year, Meta’s operating loss on the metaverse was $10.2 billion—and that will likely grow in 2022. “This fully realized vision is still a ways off,” Zuckerberg admitted. “And although the direction is clear, our path ahead is not yet perfectly defined. … [But] I’m confident these are the right investments for us to focus on going forward.”

Zuckerberg is excited about Meta’s virtual reality future, but it’s not at all clear the rest of the country is. In a Morning Consult survey conducted last fall, 68 percent of adults said they were “not interested” in the concept. When asked to describe their views on the metaverse in an Ipsos poll a few weeks ago, respondents’ most common answers, in order, were: “Not as good as real life,” “the future of technology,” “tech companies trying to figure out a new way to make money,” and “a big risk to personal privacy.”

Consumer opinion, of course, isn’t always the best gauge of a product’s viability. As the old (probably apocryphal) Henry Ford quote goes, “If I had asked people what they wanted, they would have said faster horses.” Steve Jobs once said he never relied on market research at Apple because “people don’t know what they want until you show it to them.”

Perhaps Meta’s Quest and Project Nazaré virtual and augmented-reality eyewear will be the Model T or iPhone of the next several decades. Perhaps they’ll be about as popular as Google Glass. Meta is betting tens of billions of dollars they’re the former. If it’s right, the company’s dominance of the past decade could pale in comparison to what’s coming. And if it’s wrong? 

It’ll be Mark Zuckerberg singing “Don’t You (Forget About Me)” in a deserted Chuck E. Cheese.

Worth Your Time

• We did our best earlier this week to catch you up on the situation in Ottawa from afar, but with things like this, you can’t beat on-the-ground reporting. Canadian journalist Matt Gurney spent some time at the trucker protests this week, and in a piece for The Line, he walks readers through what he saw. Downtown Ottawa, he writes, is much like a festival: There are some bad apples in the crowd, but it’s mostly good, frustrated people trying to make their voices heard. So why is Ottawa Police Chief Peter Sloly calling for backup from the armed forces instead of clearing the streets? There’s a secondary encampment—well removed from the main protest—and Gurney is unsure what’ll be unleashed if police try to clamp down. “The police are very much aware of the site, and they are very worried about the presence of a hard-right-wing, organized faction that isn’t there to protest mandates and vaccine passports, but to directly create conflict with the government,” Gurney writes. “Local officials know they’re out and about, and are worried that any move they make will trigger an incident that can easily result in dead cops, dead truckers and delighted far-right agitators. And that’s what has Sloly worried, my [government and security] sources tell me. Angry, disillusioned truckers can be talked down eventually, even if it takes a long time. The police know how to handle that. But there is another element here—smaller, hard to find, but real, which is why Sloly has been referring to the intelligence he’s seen, and asking for help, and saying he wants the military.”

• Peggy Noonan, a speechwriter for former President Ronald Reagan, spoke at the Reagan Library earlier this week about the future of the Republican Party, and what it should stand for. “As America tries to cohere and regain its cultural and societal balance, it is the job of the Republican Party to be the party of the big center, to stand for normal, regular people in all their human variety—all races, ethnicities, faiths—against the forces of ideology currently assailing them,” she said. “It is your job to see this moment for what it is and be serious. It is not your job to be extreme—to pose for Christmas photos with your family including little children fully armed with guns in order to troll the libs, as two members of Congress did. It is not your job to call the events of Jan. 6, the riot in the Capitol, ‘legitimate political discourse.’ That is a lie the cops and their families in the cathedral can see right through, that everyone can see through. If you knew how high the stakes are you wouldn’t be so frivolous.”

• Red-hot, 7.5 percent inflation sounds bad—and it is. But what does that translate to in everyday life? According to a Moody’s analysis, an extra $276 in spending per month for the average U.S. household. A study from Wells Fargo economists broke the phenomenon down even further, to find out who is feeling the burden. “Middle-class households were squeezed harder than other groups,” Gwynn Guilford notes in a Wall Street Journal writeup of the data. “Middle-class households spend a bigger share of their budgets than others on gasoline—its price was up nearly 50% in December—and used vehicles. … Higher-earning households spent relatively more on dining out and recreation, which rose much less than overall inflation.”

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Toeing the Company Line

• On Thursday’s episode of Advisory Opinions, David and Sarah talk through their disagreements on a critical Supreme Court voting rights case before turning to Sarah Palin’s libel suit against The New York Times. Plus: Sarah dunks on the Russians.

• In this week’s Stirewaltisms, Chris looks at what’s going on with Democrats, COVID-19 restrictions, and the midterm elections. “If Republicans had the problem on the way in [to the pandemic], Democrats are having the problem on the way out,” he writes. “Some Democrats imagine that the movement against restrictions is driven by right-wing crazies. That is a delusion that could lead to a wipeout for the blue team this fall.”

• Demographer Lyman Stone joined The Remnant yesterday to talk with Jonah about why Americans need to have more babies. With America’s birth rate in decline and increasingly large numbers of people living lives devoid of real connections, Lyman believes that we urgently need more pro-family policies.

• On the site today, John Gustavsson looks at the United Nations’ appeal for billions of aid for Afghanistan, and argues that despite the population facing a dire situation, agreeing to the request would be a mistake.

Let Us Know

What are some companies you thought would dominate their industries forever that ended up being surpassed? Do you have any interest in virtual reality? What do you see as its best applications?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).