Front Burner - As Meta struggles, Zuckerberg puts employees under the gun

Episode Date: August 3, 2022

As the global economy slows down, Meta CEO Mark Zuckerberg is pushing employees to speed up. The Facebook and Instagram parent company set a record in February, losing the most stock value in a single day in U.S. history. But Zuckerberg has continued sinking billions of dollars into his vision of a “metaverse,” pressed for faster updates to compete with TikTok, and is upping the pressure on employees. According to reports of an internal Q&A in June, Zuckerberg told employees: “Realistically, there are probably a bunch of people at the company who shouldn’t be here.” Today, The Verge deputy editor Alex Heath explains the many threats to Meta that make this “the most pressure” it's ever faced, and how struggles across the tech sector are causing an unprecedented shift in its lavish culture.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jonathan Mopziv, in for Jimmy Poisson. Our North Star is that, you know, by the end of the decade, we hope to basically get to around a billion people in the metaverse doing hundreds of dollars of commerce each. Facebook founder and meta CEO Mark Zuckerberg is looking years into the future as he pitches his vision for a transformative virtual world.

You know, our playbook over time has been build services, try to serve as many people as possible. And then we basically scale the monetization after that. And we've done that with Facebook. But as he sinks capital B billions into a prospective metaverse, some of Meta's big threats are getting very real right now. Our shares in Facebook owner Meta plunged by around 20% in after-hour trading. It will rank as the worst day in the company's 10-year stock market tenure and one of the biggest one-day falls of any company on record. Meta's drop in February actually became

the largest single-day loss of value for any U.S. company. Its stock is now less than half what it was at last year's highs. Meta is also struggling to compete with TikTok, getting its ad business throttled by privacy measures, and it's part of a broader sell-off that's hurting the entire tech world. So now, in a sector famous for lavish amenities and letting employees experiment, Zuckerberg

is on a new mission. He's cutting perks, scaling back hiring, and putting employees on notice that they need to produce or disappear. Today, I'm joined by Alex Heath. He's a deputy editor at The Verge, and he's gotten a glimpse inside Meta as this shift unfolds. We'll discuss why a tech giant is so vulnerable to this unstable economy and how Meta reflects a changing paradigm for the entire sector. Hey, Alex, thanks so much for joining us. Thanks for having me.

So as an example of how Mark Zuckerberg is ramping up the pressure at Meta, I was hoping you could tell us a bit about the Q&A session that he had with staff on June 30th. How did Zuckerberg respond to the questions he was getting from his employees? Yeah, it was a really interesting all hands, a fairly unusual one. He had a tone of basically saying, look, guys, like it's time for us to buckle up and work a lot harder. And the tone from the employees was kind of still stuck in the pandemic era of asking a lot about perks. Uh, and then also, you know, fears about layoffs. Do we get to keep our jobs? That sort of thing. And he really wanted to talk about the business challenges. So I think it caught employees off guard because Zuckerberg kind of came in firing pretty hot. And I think he also said something that was pretty shocking to a lot of people there about the people who work at the

company. Yeah. Yeah. He said, realistically, there's a lot of people here who shouldn't be here. And he said, I'm not going to be doing layoffs right now. He didn't rule them out, but he said, I'm basically going to turn up the heat here to where some of you are going to want to self-select out and that's okay with me. And that's just a pretty unusual thing to hear from a company this large, especially in tech, where I would say that, you know, these big tech companies during the pandemic really gave a lot of preference to employees. And I would say employees kind of took over in a way in terms of, you know, it was just very easy for employees to get other jobs, to move around tech companies. Capital was plentiful. to get other jobs, to move around tech companies, capital was plentiful. And this was really kind of trying to, I think, signal a shift that Zuckerberg's trying to make and that I think the rest of the industry is trying to make towards being more cost conscious and really

being on mission and trying to just get through a really tough time. Yeah. So that's a pretty brutal thing to say to a company's employees. And so now, I guess for you, you felt that that comment was really about sending a message to his employees. Yeah, absolutely. I mean, Meta got really big during the pandemic when it was still Facebook. You know, they went into the pandemic

with about 40,000 employees. They more than doubled in a remote environment with relaxed performance standards over about two years. And I think Zuckerberg was realizing in this meeting that the company kind of has gotten away from him a little bit in terms of the culture, in terms of the kind of people they've hired. And he really just wants the people who are there for the right reasons and who are really wanting to put in the work. He made a point of stressing, like, I can't even get people together for meetings in the middle of the day anymore because people are taking so many personal appointments while they're working from home. And I need everyone to be

available midday California time for meetings, no matter where you are in the world. And this is a company, obviously, with offices all around the world. So what are some of those changes that Meta has made to the way it treats employees recently? Well, Facebook, like Google, like all these other tech companies, really dialed up the perks over the last 10 years. You could chart it to the US stock market's historically long bull market that really favored these hyper growth tech companies. And they became the most luxurious places to work really in the world, the new Wall Street, but with better perks. At Facebook, all employees have two birthdays, their own and their faceversary,

which they celebrate each year they're at the company. They have bring-your-family-to-work days, pride events, and they get celebrities in to inspire the workforce. They even have a small village with bikes shops and an arcade everything is free so everyone can focus on connecting the world you know free laundry barber child care free meals three three times a day all that kind of stuff free shuttles to and from work with wi-fi on board and what facebook has done in the last six months has started to roll back some of those perks. So they canceled free laundry.

They moved the dinner time back into the evening to kind of keep people from... What people were doing was just taking to-go boxes and stacking them up and taking free food home to their family at like 5 p.m. So they took away the to-go containers. They pushed dinner back, really just trying to signal that like, hey, we don't want freeloaders here. If you remember, Zuckerberg was one of the first big tech CEOs to send people home very early in the pandemic and say, don't even bother coming back in the year 2020 when a lot of other companies were saying, maybe we'll reopen in the summer. Maybe we'll reopen in the fall. He was like, no, forget about it. So really wanted to

be a pandemic employer and really lead like the remote work push at scale. And I think he's realizing that that has some downsides and that also maybe that era of just insane perks needs to kind of come to an end. I mean, Alex, what you're describing is really a sea change in the company's workplace culture. So I'm curious what the reaction has been like among employees at Meta. And I know you've been kind of monitoring some internal messages and you've been speaking to employees. Tell me a bit what the morale is like there. I would say it's very challenged from a morale perspective. You know, the immediate question became internally with Zuckerberg and then this other note that went out internally from a manager saying we need to identify coasters and, you know, these kinds of people don't belong at Meta.

Everyone starts looking around and going, well, who, who is a coaster? Am I a coaster? Are you a coaster? And, you know, it even became like a meme thing internally where there's this iconic photo now of Zuckerberg hydrofoiling on a lake with the American flag. And, you know, somebody posted that internally and was like, is this a coaster? Uh, and then people like making plays on company mantras that are cringe, you know, these corporate mantras. They have one that's called Meta Metamates Me, which I can't even begin to describe what it means. All right. Perhaps with a pinky lifted to the corner of his mouth, Mark Zuckerberg telling his workers, I shall call you Metamates. Well, let's stay on unusual, Julie, because Mark Zuckerberg, a Meta founder, wants his employees to be known as Metamates. Let's stay on unusual, Julie, because Mark Zuckerberg, a Meta founder, wants his employees to be known as Metamates.

I guess that makes us, Julie. It's about just camaraderie in the company and trying to put that into a company value. But there became a meme of coasters coasting me. I think people are trying to have fun with it, but underneath that, I think is just a real fear of, am I going to be put on an employee, you know, performance plan that would maybe lead to a layoff? Am I the one that my manager is identifying as a coaster? So I think that's what's happening right now. Uh, and at the same time, you know, they've got all these incredible business challenges

that they need to work through. So, uh, he's trying to get people, harder for good reason. I mean, they have a lot of challenges. It's definitely, I think, in covering Facebook for a really long time, I would say this is probably the most pressure they've ever been under. Because all these other past scandals, Cambridge Analytica, all these data scandals, they didn't hurt the stock price. The stock kept going up and up and up. And now they're looking at stock that's been cut in half or more and people get their compensation is heavily weighted to the stock price. And so that's having a huge effect on morale. All right. So I want to talk a little bit more about some of the reasons why this is such a

difficult moment for Meta, but you know, particularly it's, it's, it's competition seems to be getting a lot more sophisticated. So why is Meta struggling to keep up with platforms like TikTok? how the news feed, which is just now called feed, historically worked, which was just showing you stuff from people you follow, right? Now they're going after TikTok, which uses AI to just recommend things to you from accounts you don't follow necessarily. And that's a huge technical investment that's very expensive to build that AI. They're very behind on it. And they think that that's where the future is going. And it's going to be, you know, maybe two years before Zuckerberg told them internally, they have line of sight to competing with TikTok. And I would say that behind this is this prompt that Apple rolled out on iPhones that probably a lot of listeners to this have seen and tapped on where it says, ask, you know,

the app not to track me. Your information is for sale. You have become the product. That's why iPhone users will now be asked a single, simple question. Allow apps to track you or not. Maybe you're okay giving an app your email address. And that little button that Apple rolled out has cost Facebook over $10 billion last year

and lost ad revenue because they use that data, that tracking data to target ads. And their ads have become way less effective because of Apple. So they were already hurting pretty bad. And they underestimated how bad they would be hurt by those Apple changes. And then we're heading into a potential recession, as Zuckerberg thinks, or as he told employees, one of the worst downturns I'm expecting to see in my lifetime. That's when ad budgets get pulled back. So already they have the Apple issue.

Ad budgets are getting paused or pulled back. And then they have TikTok that's competing with them in social media. Not to mention, we haven't even talked about the metaverse. But then they're spending billions of dollars on the metaverse, which Zuckerberg has been pretty clear he doesn't think will make money until the end of the decade. So why? I mean, why does the metaverse, which we heard so much about this announcement. Today, we're going to talk about the metaverse. I want to share what we imagine is possible.

The experiences you'll have, the creative economy we'll all build, and the technology that needs to be invented, as well as how we're going to all do this together. Why is Zuckerberg projecting that it's not going to make any money for the next 10 years or so? Why is that not helping Meta right now? still really niche. I mean, the Oculus, the Quest headset, which is Meta's kind of current VR headset, it actually sold more units than Xbox last year. So it's estimated to have sold over 10 million. So it's starting to hit some kind of scale. But the thing is, people don't use these headsets a lot. Once they buy them, they maybe use them a few times. They're not like super sticky products. And that's because the tech is just not there yet. You know, they're going to release this high end virtual reality headset later this year. And then Apple is rumored to be coming out with its own high end mixed reality headset as soon as later this year, early next. So I think they hope that this tech will hit scale and become something that normal

people, people who aren't just tech enthusiasts, want to use. But it's nowhere near there yet. I mean, I don't know if you've tried to put on a headset and use it and get into something. It can take 20 minutes just to get into one of these experiences with someone else. And so they have a lot of work to do there. We believe the metaverse will be the successor to the mobile internet. We'll be able to feel present, like we're right there with people, no matter how far apart we actually are. We'll be able to express ourselves in new, joyful, completely immersive ways. And that's going to unlock a lot of amazing new experiences. And they're building this 3D version of Facebook for the metaverse, for their headsets and for

other products called Horizon, which is like instead of commenting on a feed with people, you're like an avatar with them in virtual worlds. It's like Roblox meets Fortnite meets Minecraft basically with Facebook. That's a huge priority for them because they want to build some kind of social experience in 3D that people will want to use, but they don't have it yet. And it's incredibly costly to build. And Zuckerberg is saying, look, we're going to intentionally lose money on the hardware because we want to get this out to as many people as possible. And we're going to figure out how to make money on the back end. And they think that's through virtual goods, potentially NFTs,

bringing your digital skins with you into different virtual worlds. Buying digital goods, digital content, different things to express themselves. So whether that's clothing for their avatar or different digital goods for their virtual home or things to decorate their virtual conference room, utilities to be able to be more productive in virtual and augmented reality and across the metaverse overall. So I think that there's going to be a massive economy around this. But that's still all a long way out. I mean, this is just a very heady,

futuristic vision of where he wants the world to go. And we're just not there yet. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here.

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To listen to this podcast, just search for Money for Couples. Like, so if I understand correctly, like the metaverse is not just some side project for Mark Zuckerberg. He's putting all his eggs in this basket. Yes, I would think that's fair. He sees this as his legacy. And Facebook barely made the shift to mobile when it went public in 2012. There were real doubts that they were going to be able to become a successful mobile app business. And he doesn't want to go through that again, that pain again. He wants to invent the future himself. You know, I've talked to him about this. I've tried all their demos. Um, there is an element to this that is really social if it's

done right, where you do feel like you are more physically with someone if you're in a 3d environment with them wearing a headset, but it's just very low fidelity, low resolution. There's no legs in the metaverse yet. You're just this torso and head. And there's just a lot of work before it becomes something I think that's compelling for a lot of people. He could be making a grave mistake of investing too much too early. So yeah, he's very focused on it. I mean, it is no going back at this point in terms of what they're spending and in terms of just the amount of people that they have working on this. And Alex, you were talking just before kind of about the different economic headwinds that the company is facing.

So why is a massive tech company like Meta particularly vulnerable to things like inflation or there just being generally less money circulating in the economy. Yeah. Well, if you think about what the market rewarded, what the stock market rewarded before really the last year, it was these hyper growth stocks like Facebook. And Facebook's not really even a growth stock anymore. It does make profit, a good amount of profit still, but they've stopped growing. And so that's a huge issue for them in an inflationary environment. But really what has happened broader picture is just the market has shifted from rewarding these companies that are growth companies to rewarding kind of more reliable profit driven dividend type companies. And that's hurting the entire tech sector. And the first names to get their stock prices cut in a shift like this are the big tech names that have ruled the market for the last decade. And Facebook and Google and all these companies have really never lived through a period like this where the market's resetting this way.

Because they were all kind of birthed in the beginnings of this, like I was saying, the longest running bull market in US stock history. And so there's a lot of employees at these companies who have just never experienced a downturn like this. I do think that it was interesting in their last earnings report, Facebook said they reported their first ever revenue drop. Their revenue was 1% lower than it was a year ago. And they had said, had it not been for currency changes, so the dollar obviously is becoming much stronger relative to other international currencies. Had it not been for that effect, they would have actually posted a revenue growth for the period. So I mean, there are a lot of things outside of their control that are really hurting them, that are hurting all these companies, like currency changes, like inflation. And even like

the Ukraine-Russia situation, I mean, they had a pretty large user base in Russia that all of a sudden they don't have anymore. And one of the things that we talk a lot about when we talk about Meta is antitrust. And last week, the US Trade Commission sued to block Meta from acquiring a virtual reality company called Within. What does that signal about the threat antitrust lawsuits could be going forward? I think it just goes to further illustrate the point that Facebook has operated illegally with its acquisitions of Instagram and WhatsApp. The FTC is also suing to unwind those mergers, saying that, you know, while at the time they approved them and they didn't seem competitive at the time, they were used to really solidify Facebook's dominance in social networking. And so I think what they're worried about is a similar thing happening in virtual reality. And Meta has been buying a lot of these VR studios, the most promising ones, the ones that make the most money. They just kind of just scoop them up off the

platform and buy them and bring them in house. I don't think it's the same kind of thing. You don't really have the same network effects and growth that happens in VR today as you did on mobile with Instagram and WhatsApp robot. It's a novel case. I mean, it's her first big case like this as FTC chair. And the fact that she's going after this really relatively tiny VR acquisition, I think just shows a lot about how much the scrutiny on meta and Zuckerberg trying to build this metaverse, just how intense it's going to be from not just like users who are skeptical of it and employees who are skeptical of it, but governments who are already concerned about Meta's power and don't want the company to become a monopoly in this futuristic metaverse. All right, Alex, I want to get you to take a step back for a bit and kind of focus on the broader tech sector. What does these changes that we're seeing at Meta, you know, there's this change in workplace culture,

what do you think it says about the shift we're seeing at Meta, this change in workplace culture, what do you think it says about the shift we're seeing in the broader tech sector? I think when you have a company like Meta that still makes billions a year in profit, Google, which is doing similar belt tightening, makes even more money, it goes to show that a lot more pain is to come. If the largest, most established, richest tech companies in the world are behaving this way, they have more data than anyone in terms of what's happening in the economy, what's happening globally, and they can see things before others. And to me, it just signals that the tech market in particular is going to go through a pretty significant contraction period where companies, we've seen this with Shopify, we've seen this with a lot of names, are going to go through a pretty significant contraction period where companies, we've seen

this with Shopify, we've seen this with a lot of names, are going to be laying a lot of people off, enacting hiring freezes, cutting spending, because the cost of capital has become so high and money has flowed out of their stock. And when the stock gets hammered like it has for a lot of these names, they can't do as much as they used to. So I just think we're going to see really – it's going to become a period where only the strongest survive and the ones who are able to adapt survive. And I think Zuckerberg sees that and he's gone through that before with the shift to mobile when the company went public and was on kind of on life support. I would say it's definitely a huge tone shift, a huge vibe shift, you could say, but it remains to be seen on just how bad it's going to get, I think. We're still at the beginning.

Okay, Alex. So long-term, how will we know whether Zuckerberg's gamble on a tougher work culture paid off? I think if you start opening Instagram and Facebook in a year or two years, and it's showing you things and videos that are just as interesting and engaging as TikTok, then they will have shown that they have gotten their act together there. If not, they're in real trouble. And then on the metaverse,

if VR and AR glasses become tech that is accessible to a wider audience, tech that is almost as easy as setting up a smartphone, then they may have something there. They're not there yet, but if that happens, then it will have started to pay off. But it's just a lot of uncertainty. Alex Heath, thanks so much for coming on the show. Thanks for having me. That's all for today. Thanks for listening to FrontBurner. I'll be back tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.