Sandberg's departure shows that Zuckerberg is out of ideas for how to turn around 'Meta'
Last week it was announced that Meta’s long-serving Chief Operating Officer Sheryl Sandberg had departed her position after 14 years of service.
Sandberg is arguably equally or even more significant than founder Mark Zuckerberg in transforming Facebook from a small startup with a brilliant product but no viable business model into the social media conglomerate which it is today. This is due to Sandberg introducing an advertising business to monetise the original Facebook site. Today Facebook, or Meta as it is now known, shares a duopoly with Google in the internet advertising sector. This has propelled the company’s market capitalisation to just over $500 billion as of the time of writing, having peaked at around $1 trillion during the technology stock boom during the economic recovery from the pandemic. This creation of immense value is almost entirely due to the business model created by Sandberg, as without her it is likely that Facebook would have reached the same heights in terms of the success of the product, indicated by metrics such as user numbers, but never would have generated the same return for investors as it would not have a successful business model.
In addition, according to The Economist, Sandberg managed other key areas of the business-side of the company including “commercial strategy and staffing, as well as politics”. This means that Meta’s key operator, overseeing the areas of the business which allow it to function on a daily basis, will soon leave the company.
Why?
This raises the question of why someone so integral to the company has left at such a key moment in the history of the company. In recent months Meta’s share price has approximately halved, weathered the storm of Frances Haugen's revelations, and attempted a bold pivot to the highly unproved ‘Metaverse’, prompting the holding company’s name change to Meta.
Sandberg masterminded Facebook’s first major strategy change- developing the advertising business. As the entrance into the ‘Metaverse’ market is the first time that the company has diversified away from social media, I would argue that this current transformation is equal or greater in scale and complexity than the development of the advertising model. Why would Meta’s most experienced and competent operator leave during a period in which her skills are needed more than ever before.
Again according to The Economist, Sandberg’s departure is due to her wish to focus on “her philanthropic work” and is not due to internal conflict at Meta. However, it is possible that this is merely intended to show to investors that the leadership of the company is stable and that they should not fear any issues during Sandberg’s transition out of the company. Nevertheless, Meta’s share price fell by 3% after the news was announced, indicating that investors view Sandberg as essential to the future of the company. However, given the current rising volatility in financial markets, such a decline is not unusual at the moment, with macroeconomic considerations being of greater importance in the decision making of investors.
Sandberg and Meta’s denial of a power struggle between her and Zuckerberg does not rule out the possibility that in reality there was disagreement. The distribution of control in the partnership has, excluding Sandberg’s initial advertising strategy, been Zuckerberg in control of long-term strategy as indicated by his strong belief in the Metaverse, whilst Sandberg handled the day-to-day operations of the business; her job increasingly becoming crisis management as whistleblowers, government investigations and the rise of competitors such as TikTok threatened the future of the company.
This means that it is possible that Sandberg viewed Zuckerberg’s strategy decisions as incompatible with the actual position of the company in a period in which the core businesses of the company, Instagram and Facebook in particular, were suffering. Instead of working to address the decreasing popularity of these social media brands amongst the key demographic of younger generations, which Meta needs if it is to sustain its user numbers into the future, Zuckerberg invested $10 billion into Research and Development for the Metaverse; a vanity project which is unlikely to provide the company-saving return which he hopes for. According to The Times, Sandberg did not believe in the Metaverse. This major strategy change therefore may have meant that Sandberg did not see the company as the place for her.
On the other hand, it is possible that the rift was the other way around, with Zuckerberg blaming Sandberg for the lagging share price of the group, including a $240 billion fall in market capitalisation in a single day; the largest one day decrease in the value of a publicly-traded company in history. Sandberg’s departure potentially not being amicable is displayed by her being investigated for using company funds on private projects. As this investigation comes immediately following her leaving Facebook, it appears that the parting of ways was not peaceful and the company or Zuckerberg himself is unnecessarily investigating her for compliance issues.
Whether it was Sandberg’s frustration which caused her to decide to leave ‘Meta’ or if she was forced out by Zuckerberg over a strategic disagreement, the firm has lost an invaluable leader who would have been key to the company’s pivot to the Metaverse. This raises the question of what this means for the company’s future prospects.
What does this mean for the future of ‘Meta’?
As Chief Operating Officer, Sandberg would have had significant influence in the decision-making process of Meta. As already discussed, she was responsible for factors affecting the business which Zuckerberg did not wish to handle personally. In addition, she played an important role in controlling the strategic decisions of the CEO. As Zuckerberg arguably owes the success of his company and hence his fortune to Sandberg, mutual respect and cooperation between the two was assured; allowing for a working relationship that, until recently, was effective in managing the company.
However, as Zuckerberg, in his own words, does not "plan to replace Sheryl's role in our existing structure.", control in the senior leadership of Meta is more centralised to Zuckerberg himself than ever as the authority of Sandberg in the operations and decision-making of the firm is not being replicated. Although Nick Clegg, a figure highly familiar to Brits as our former Deputy Prime Minister, was recently promoted to President of Global Affairs, control is still increasingly in Zuckerberg’s hands. Clegg’s promotion makes him responsible for regulation, or rather minimising it, by handling the company’s relationship with governments around the world; a role previously held by Sandberg. However, as he has not been at the firm for as long, his authority and control of Zuckerberg is likely to be lower than Sandberg.
Furthermore, the infamous Venture Capital investor Peter Thiel, who provided the first significant investment in Facebook; allowing for its survival in its early days, recently left Meta's board of directors. His and Sandberg’s departures indicate that Zuckerberg is intent on removing the ‘old guard’ of management within the company and replacing them with newer faces such as Clegg; although these new figures have smaller roles. This means that the decision-making power of Zuckerberg is less limited than before. He is now free to pursue his pivot to the ‘Metaverse’, unlimited by doubters within his management.
This puts the future of the firm in jeopardy as it is clear than there is little demand outside the niche market of enthusiasts for the ‘Metaverse’. The current macroeconomic circumstances resulting in a loss of liquidity to financial markets meaning that the market for Web3, which the Metaverse is a part of, has all but collapsed as the startups within this industry were funded by high volumes of Venture Capital and Stockmarket investment which has no other assets left to invest in. This era of excess and speculation is now over and reality has arrived for both Meta and the ‘Metaverse’. This decline in demand is perhaps best illustrated by the Google search data for the 'Metaverse'; which shows current interest at 20% of its peak in searches. However, there is now little to prevent Zuckerberg from investing in it as he sees fit.
Zuckerberg has already invested in $10 billion in Research and Development for the ‘Metaverse’. If he is truly serious about this being his strategy to ensure the long-term survival of his business in the event of the decline of his flagship social media platforms, the project will only require more R&D in the future, and increasing costs with it. However, as it has turned out to be merely a passing fad as opposed to a sustainable business, this investment is highly unlikely to yield a return.
$10 billion is a significant loss on an R&D project for any firm, however the firm has $44 billion in cash on hand and nearly half a trillion dollars in market capitalisation; meaning that it is well positioned to absorb any losses in the Metaverse division of the company.
However, it is not the cost of the project which should trouble Meta shareholders, but the fact that it is the completely wrong strategy for Meta’s situation.
The key threat to the company is the rise of TikTok, owned by Chinese firm ByteDance. The app is rapidly winning the battle for eyeballs which Meta competes for through Instagram and Facebook. The possibility of a sustained decline in market share is one that is highly probable.
Zuckerberg has appeared to take Don Draper’s "If you don't like what's being said, change the conversation" line too literally. Instead of focusing on the core businesses of his firm he has gone all in on the smallest division of it, going so far as to change the name of the entire company in order to raise awareness of it.
This is the wrong strategy, instead he should focus on improving what his company is good at and has been good at since its founding: social media. The Metaverse requires an entirely different business model in the form of selling hardware as opposed to an app, the development of new technology, and a different type of customer; one who is willing to pay for the product of the company. This means that a fundamental change in how the company and by extension Zuckerberg does business is required.
However, this is likely to be ineffective as the demand for the ‘Metaverse’ simply is not there. Instead Meta could refocus the investment in the scheme on Research and Development to improve its existing platforms, allowing it to better compete with TikTok. For instance, TikTok innovated through its creation of the market for short videos, whilst Snapchat invented ‘Stories’. These innovations were both copied by Meta on the Facebook and Instagram platforms. Instead of copying the innovations of others, Meta could innovate using its highly capable staff and availability of financial capital to develop new features of its own on existing platforms and regain the competitive advantage in the market that way.
However, so far Zuckerberg has chosen not to do this and, with Sandberg’s departure, this looks likely to continue into the future.
Conclusion:
In the long-run, Sandberg’s departure will likely have a highly negative impact on Meta. The company has lost a skilled operator who ensured the stability of the business as it grew into the vast corporation it is today. Sandberg acted as Zuckerberg’s guardian angel; protecting him from regulatory scandal, the day-to-day management of the firm, as well as keeping his strategic power in check.
However, this is now gone and the company is left exposed to the radical pivot of Zuckerberg to the ‘Metaverse’; an investment I believe to be irresponsible and unlikely to provide a return on investment.
Meta investors should be fearful, for they have lost the one person with the ability to control Mark Zuckerberg.
The fate of the company now rests solely in his hands.