Death, taxes and Facebook

If I were to tell you the following things about a hypothetical company…

• The efficacy of the firm’s core product was reduced by ~50% for many customers due to a blatant, monpolistic shot across the bow from one of its competitors. 

• The company has lost $42B since 2020 betting its future on something McKinsey thought was a good idea. 

• Of its peers, the company is the most visibly behind in pivoting to AI/bringing user facing AI tools to market .  

• The firm recently laid off 22% of its staff.

• Only a third of US teens use this product, down from 71% in 2014. 

• A strategic risk on this company’s 10K is the fact that their founder wants to occasionally fuck around and find out by fighting people who are a lot bigger than him.  

….You would of course correctly posit that this company is doing better than ever. In fact, said company has a >$1.2T market cap, has 4x’d off its lows in 2022 and is surging near all-time highs.    

While I conceptually understand how Facebook pulled this off (focusing like hell on the core ads product again), I’ll never truly “get it.”  Several years ago, I wrote a piece on how the core Facebook product was broken beyond the point of repair that I still mostly agree with. My attempt to sell a stroller on Facebook Marketplace this week has been a dystopian nightmare. The Instagram account we use to occasionally toss up a quick cute photo of our daughter and bulldog is awash in spam pitches and DMs to turn our offspring into micro-influencers. Meta is damn near unusable yet there are plenty of users happily there and clicking away on ads. 

The answer here is simple— Facebook’s advertising product is spectacular. For the purpose it’s meant to serve, it may be the single most effective product to ever come out of Silicon Valley. The degree to which even highly sophisticated advertisers essentially let the Facebook algorithm make major decisions for them because it can do it better is highly underappreciated.

To say that Facebook is a laggard in AI also isn’t entirely fair– while there aren’t transformative user facing genAI features, AI is hard at work doing the most important thing for Facebook…….making its ads more effective. 

The lesson here is equally simple. Don’t bet against Mark Zuckerberg and especially don’t bet against the product that has the lion’s share of a boomer’s attention. So long as the latest pickleball and mahjong meetups are happening on Zuck’s platforms, Meta will continue to print cash.  

Thus, if I’m Facebook, there’s only one data point that truly worries me. Ever so quietly, it came out in Shou Chew’s testimony on child safety that the average TikTok user is now over 30 years old. What was perceived as a data point meant to appease regulators, I believe was a subtle sleight of hand to the market that TikTok is ever so slowly encroaching on Facebook’s most valuable turf. The youth have eyeballs but the olds have the money.

In 2023, Facebook made $13.69B from Chinese advertisers alone, largely on the back of a ~$6B cash injection from Temu. 

If we take the Occam’s razor here and assume that Temu is a massively unsustainable Ponzi scheme that will collapse in a blaze of glory, then Zuckerberg is 2023’s grand geopolitical hero. In effect, Facebook impeccably executed a massive sovereign wealth transfer by taking $6B out of Beijing and deploying into everyday Americans’ Vanguard accounts and pension funds. Reasonable people can debate how much of a threat Temu poses to American industry but based on 2023 numbers, Amazon is humming along just fine.  

All told, Facebook is playing this absolutely brilliantly. They’re arbing dollars from China without getting into any sort of strategic partnership with Chinese companies, locking down longer-term, joint value creating partnerships with Amazon via Buy With Prime integrations in ads and leaving the door open to pursue their own commerce ambitions.  

I’ve long believed commerce will ultimately be part of Facebook’s endgame for no other reason but market size. Online commerce is a >$1T opportunity, set within the broader $6T that retail contributes to US GDP alone. Globally, digital ad spend is about a $600B market in 2024. With the metaverse looking like a nothingburger, Chinese style superapps still mostly a fantasy in the West and existential privacy concerns about Facebook as a core AI player, commerce still seems like Facebook’s longterm refuge. Zuck also has the luxury of sitting back on his mountains of cash and watching TikTok Shop attempt to forge a path against Amazon to decide how he wants to enter the fray. Not a bad deal.

Amazonia 

My quick take on the week’s most interesting story in the Amazon ecosystem

Long Live Rufus: Nearly eight hours after I argued that many of Amazon’s recent product updates were designed to collect AI training data from users, Amazon officially rolled out Rufus, it’s genAI powered shopping assistant.

While I appreciate Amazon making me look like I know what I’m talking about, it’s hard to be impressed by the earliest Rufus demos. Suggesting flowers and candy as Valentine’s Day gifts isn’t exactly the pinnacle of innovation. Broadly speaking, the biggest asset that Amazon has for Rufus is potentially also its biggest challenge. Amazon has an ungodly amount of review and purchase data…but in aggregate, will that just lead to AI suggesting obvious, lowest common denominator product recommendations?

Dispatches from America

A potpurri of vibes from across the land

America The Beautiful: The European mind will be forced to comprehend this  

OK, fine. Here are more great tweets about MetLife Stadium hosting the World Cup: The end of Sweden, the pinnacle of grift, and the beauty of Seacucus  

Should’ve been a cowboy: RIP to Toby Keith, a far more complex country star and political figure than many headlines let on.

Let he who has never had 10+ Bud heavies and belted Courtesy of the Red, White and Blue cast the first stone. For the rest of us, pour out a tall one for Toby. Or put a boot in someone’s ass. It’s the American way.