These last few months, social networks have been marked by news of major layoffs and disclosure of financial losses, is this the end of the business model based on social networks? But first, let’s contextualize how the big chains are doing today.
We cannot fail to start with Twitter, on October 28, 2022, Elon Musk himself tweeted: “the bird has been released”, indicating the end of the soap opera about the purchase of Twitter. And the changes have already started on the same day the purchase was confirmed, the main executives of the social network were fired, including the chief executive.
In another move, Elon Musk dissolved Twitter’s board of directors and named himself sole director. But that wasn’t all, the billionaire even made a massive layoff. According to initial information, around 50% of its 7,500 employees worldwide were affected.
According to “Bloomberg New”, on November 10, 2022 there was a meeting with the employees who stayed on Twitter, via video conference with Elon Musk himself and the businessman revealed that he could declare the company bankrupt next year. “Reuters” reported in a report that in his first general emailed statement to the company, Musk would have informed that Twitter may not “survive the next economic downturn”.
The next big company we are going to talk about is “META”, perhaps best known for being the owner of facebook, Instagram and WhatsApp. Founded by billionaire “Mark Zuckerberg”, the company lost 72% of its market value this year.
In November of that year, the company made the biggest cut in its history. In a statement from Zuckerberg himself, employees were informed of the size of the cut. Below is a translated excerpt from the statement:
“Today, I’m sharing some of the toughest changes we’ve made in Meta’s history. I decided to reduce our team size by about 13% and let more than 11,000 of our talented employees go. We are also taking a number of additional steps to become a leaner and more efficient company, cutting discretionary spending and extending our hiring freeze through Q1. I want to take responsibility for those decisions and explain how we got here. I know it’s hard for everyone, and I’m so sorry for those impacted.”
Zuckerberg’s fault, according to analysts, was the high investment of resources in the “metaverse”, including the name change to “META” was precisely for this reason. Many claim that he is obsessed with the “metaverse” and is sure that this will be the company’s salvation in the future. At a recent shareholder conference he said, “Look, I know a lot of people might disagree with this investment. But from what I can tell, I understand that this (the metaverse) is going to be a very important thing, and I think it would be a mistake for us not to focus on any of these areas.” Now, only time will tell if he is a genius or a fool.
The case of “Alphabet”, owner of Google and YouTube, is a little different. Mass layoffs were not disclosed, on the contrary, it increased its staff by 24% compared to last year.
However, the release of the company’s latest balance sheet pointed to a drop in operating profit of 19%, which triggered an alert in investors, as it was a drop in revenue from advertisers, which is one of the company’s main revenues.
The CEO of Alphabet and Google, “Sundar Pichai”, in a statement said:
“Third quarter financial results reflect healthy growth in search and momentum in cloud services, albeit affected by currency. We are working to realign resources towards our highest growth priorities.”
The big concern in the case of Alphabet is people asking the following question, if even one of the largest technology companies in the world is starting to suffer the impacts of the economic crisis, what is left for the others?
But why might these big tech companies be threatened even with bankruptcy?
The most obvious explanation is the decrease in advertising money in general. Google, Meta and Microsoft reported a drop in advertising revenue in recent months, which made the companies’ shares melt in the financial market.
Many experts argue that during the pandemic, as a large part of the world started to work, study and even have their social life through cell phones, tablets, notebooks, that is, a more online life, social networks received large investments in ads , a contribution of money that is no longer sustainable after this period.
Zuckerberg himself, owner of META, mentioned this issue in his employee resignation note:
“Many people predicted that this would be a permanent acceleration and that it would continue even after the pandemic ended. Me too. So I made the decision to significantly increase our investments. Unfortunately, it didn’t turn out the way I had hoped.”
Another issue is that, as much as many people have created the habit of staying online, after the pandemic, many networks emerged to compete for this money from advertisers, such as TikTok and KWai, which grew a lot in the pandemic and new networks that are being announced, such as Bluesky by the creator of Twitter and perhaps a return to Orkut, as announced this year by the Turkish engineer “Orkut Buyukkokten”, its creator.
The third issue would be the scenario of the current global economy, high interest rates, low credit available in the market, threat of recession in developed countries, geopolitical tensions such as between the United States, China and Russia and the war in Ukraine. This scenario becomes unfavorable for companies to invest in advertisements or marketing actions. Although technology companies are new, the problem is an old acquaintance called supply and demand.
Despite this unfavorable scenario, I don’t believe it will be the end of social networks. It will be another cycle, just like many others we’ve had. Over the last twenty years, we have seen networks emerge, become successful, and suddenly no one uses them anymore. Unfortunately for many companies it will be the end, but for every end there is a new beginning.
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