Meta vs. Everyone – Independence Day

Meta pushes harder for independence.

• Meta’s difficult experience with Android and iOS has left it so determined to be self-reliant that in addition to AI, it is now having a go at creating a search engine in another sign that the industry increasingly thinks that Google no longer has an edge in a must-have service.
• Meta appears to be building a search engine but whether this is to remove dependencies that are already present in its digital ecosystem or make a full-frontal assault on Google is not clear at this time.
• This comes at the same time as multiple challenges to Google’s dominance and this time around, these challenges are more credible than in the past.
• This is because generative AI creates the possibility for the delivery of search results to change from a list of blue links to an AI-generated summary which could upend how search is monetised.
• This is a classic dislocation and as such, creates an opportunity for new entrants to disrupt Google’s business and take market share.
• The key to this will be the quality of search and here, LLMs may be having the effect of levelling the playing field.
• This is because LLMs are very good at ingesting vast amounts of unstructured data and making sense of it which lowers the barriers of entry to crawling the internet and being able to deal with the long tail of search which is where Google has excelled for years.
• The caveat here is that search needs to be done in real-time as results need to be current and here Google is still better, but the gap is rapidly closing.
• This is how Microsoft and start-ups like Perplexity are starting to see some traction with their search products although this has yet to show up in the financial performance of either Google or Microsoft.
• Meta’s strategy appears to be different as I think this is about being independent rather than taking a pound of flesh out of Google.
• Meta’s current business is dependent on being present on the digital ecosystems of Apple and Google and as a result, it has been hostage to the whims of these players.
• The best example of this was when Apple decided to change the rules around apps’ ability to track its users which is how Meta was able to monetise its users so effectively.
• This caused consternation at Meta, forced it to invent a new monetisation method and caused wobbles in both its financial performance and its share price.
• As a result, Mr Zuckerberg has been determined that as the digital ecosystem extends beyond the smartphone, Meta would be not dependent on any 3^rd party in this fashion again.
• This is why $10bn+ is being spent on The Metaverse every year where Meta has both a leading platform and also has complete control of its offering from hardware to software.
• This has also occurred in AI, where Meta has gone from being a real laggard to one of the leading players.
• I think that search is another move in this direction with the intention to switch its revenue-generating products to its own search algorithm assuming it can match Google’s quality.
• A few years ago, this would have been a pipe dream, but that is no longer the case, and replacing Google search in Meta products is a possibility.
• This would reduce expenses somewhat, but I think the real goal is to remove a dependency to ensure that there are no nasty surprises in the future.
• Meta is now the standard for open-source AI (although there are now a few more competitors) as such has ensured that there will always be an open version of whatever closed-source product that Google, OpenAI, Microsoft, Amazon, Anthropic and so on come up with.
• The push for independence is now widespread throughout Meta and for as long as Mr Zuckerberg controls the company, I do not expect this to change.
• AI and generative AI in particular are sending ripples through the digital ecosystem and preconceived norms that have been in place for 10 years or more are starting to be questioned.
• This is not going to change the outlook for Meta which I think is well positioned when it comes to AI, but in the short to medium term will depend on the performance of its social media properties.
• I think that this outlook is fairly reflected in the Meta share price and so I remain indifferent to holding the shares.