Meta has been quieter about its artificial-intelligence-focused endeavors this year than some of its big-tech peers like Microsoft and NVIDIA, but it expects just as massive a transformation of its business from the much-hyped technology.
In its second-quarter earnings conference call, Meta founder and CEO Mark Zuckerberg detailed how AI permeates the company. For example, nearly all of Meta’s advertisers now use at least one AI-based product, allowing them, for instance, to personalize and customize ads. He also touted an increase of 7% in time spent on Facebook after launching AI-recommended content from accounts that users don’t follow.
Now the company plans an aggressive push of its own version of generative AI, the kinds of large language models that have gotten so much attention lately. In July, the company released an open-source—i.e., free for even commercial use—generative AI platform called Llama 2, which Meta hopes will emerge as a competitor to OpenAI’s GPT-4. Meta is betting its platform will unleash users’ creative potential and result in a flood of content. If that occurs, Meta’s powerful algorithms for matching content with users—4 billion of them across all of its platforms—will become indispensable as a content-discovery tool with a rich set of monetization options from advertising to ecommerce to subscriptions.
The big-picture view suggests that Meta is building a hub for user-generated content (UGC) discovery and distribution that aims to go head-to-head with the likes of YouTube and TikTok. In the world of unlimited content, the power shifts from creators to distributors and curators. In this scenario, the ultimate constraint on demand for content is the totality of leisure man-hours; Meta’s goal is to optimize how to fill those hours with the most compelling content.
Generative AI could also help transform Meta’s main money-maker, its advertising business. The digital-ad market comprises roughly 70% of the overall advertising market, and is dominated by two firms, Meta and Alphabet. Finding a way to expand its market share has been a stumbling block for Meta. However, with these new AI tools, Meta may have found a way around that constraint. It may not be able to take much more share of the advertising market, but it could start taking share of the advertising-creation market. On the call, Zuckerberg specifically mentioned the strides made by its Advantage+ generative AI tools that allows advertisers to supply just an image, from which the AI will then develop an entire ad campaign. For small companies that can’t afford to hire an advertising agency, this could be a powerful alternative and a lucrative market for Meta. Its Advantage+ ad program has the potential to take share from creatives and even advertising agencies by customizing, altering, or outright creating content for advertising, rather than just targeting or measuring it.
Meta’s embrace of AI is one of several efforts the company’s made over the past year to reverse the slump that followed its 2021 shift into the metaverse. Zuckerberg showed common sense on reining in spending, the company executed on its new identifier for advertisers (IDFA) independent ad-targeting model, and it ramped up new initiatives like Reels, Advantage+, and most recently Threads. Meta has also delivered robust recoveries in free cash flow and revenue, with free cash flows for 2023 now forecast at approximately US$30 billion, a big increase from the US$10 billion forecast at the end of 2022. Even critical media coverage about privacy concerns and Facebook’s effects on democracy have waned and regulatory pressures have eased (except in the EU).
All this doesn’t mean Meta’s out of the woods, though. While impressive, the turnaround only just got the company back to where it was a year ago, when it was facing hard questions on rising costs, large infrastructure investments, and its incredibly audacious spending on the metaverse. Reality Labs—the division of the company building the metaverse that has already burned through US$30 billion since 2020—is losing a further US$15 billion per year, and Meta expects those losses to increase meaningfully in fiscal year 2024. Meta has yet to provide an explanation about how this is going to pay off. Even with its recent good fortune and AI potential, Zuckerberg will have to provide some real clarity soon to avoid another investor rebuke.
Image source: Romain TALON – stock.adobe.com.
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