Facebook 2021: A,I can’t help you A,I won’t help you?

 

Company over country; profit over propriety. These were the key points made in the recent book An Ugly Truth, and the documentary The Social Dilemma. Facebook (aka Meta) has been exposed to a staggering amount of bad press which included a whistleblower, Frances Haugen, federal lawsuits, and accusations of pandering to children at a time when suicide among the very young is startlingly increasing.

Yet, especially despite all of the above, Facebook’s numbers are dazzling. Yahoo! Reported on November 24th of this year:

“Meta's third-quarter 2021 earnings of $3.22 per share beat the Zacks Consensus Estimate by 0.6% and increased 18.8% year over year.

Revenues of $29.01 billion missed the Zacks Consensus Estimate by 1.8% but increased 35.1% year over year. At constant currency (cc), the top line improved 34%.

Geographically, Asia-Pacific, the United States & Canada, Europe, and Rest of World (RoW) revenues grew 29.1%, 34.3%, 36.3%, and 49.1%, on a year-over-year basis, respectively.

Average Revenue per User (ARPU) in RoW, Europe, the United States & Canada, and Asia-Pacific grew 41.4%, 33%, 32.1% and 17.2%, on a year-over-year basis, respectively.

Advertising revenues surged 33.2% year over year to $28.28 billion and accounted for 97.5% of third-quarter revenues. Other revenues surged 194.8% year over year to $734 million.

The tech giant’s RoW, Europe, the United States & Canada, and Asia-Pacific advertising revenues grew 49.6%, 35%, 31.1% and 28.5%, on a year-over-year basis, respectively.

Ad impressions served rose 9% and average price per ad increased 22% from the year-ago quarter.

User Base Continues to Expand

Monthly active users (MAUs) were 2.910 billion, up 6.2% year over year.

MAUs in Asia-Pacific, RoW, Europe, and the United States & Canada grew 9.6%, 4.7%, 2.4% and 2.4% to 1.28 billion, 949 million, 423 million and 261 million, respectively.

Daily Active Users (DAUs) were 1.930 billion, which increased 6% year over year and represented 66% of MAUs.

Asia-Pacific DAUs were up 10.7% year over year to 805 million. DAUs in RoW and Europe grew 4.9% and 1% to 622 million and 308 million, respectively. The United States & Canada DAUs were unchanged at 196 million.

Family Daily Active People or DAP, defined as a registered and logged-in user who visited at least one of the Family products (Meta, Instagram, Messenger and/or WhatsApp) on a given day, were 2.81 billion, up 10.6% year over year.” 

Scott Galloway’s New Algorithm of Value is surely at work here. (What it basically says is the bigger you get, the more data you can gather; the more data you can gather, the bigger you get). Can Facebook and Mark Zuckerberg be held responsible for anything that happens, whether intentionally due to their AI or as a result of it?

The Economist recently reported in a piece called “Accounting for algorithms,” that a UN report published in 2018 attributed a “determining role” for Facebook’s platform in the Rohingya genocide. According to the article, on December 6th of 2021 a letter was delivered to Facebook’s offices in London and California. The suit will seek “at least $150bn in compensations for “wrongful death, personal injury, pain and suffering, emotional distress, and loss of property.” The suit is predicated on being able to apply Burmese law for harms done in Myanmar. 

Most importantly, the article points out that, “The current lawsuits argue that Facebook is both manufacturer and, to some extent, messenger: its algorithms decide what people see. Whether and how the firm is liable for what its algorithms do will now be tested.” 

That is just the point: If Facebook can create algorithms and media that facilitate this kind of hate and tragedy, do they not have the power to create algorithms that don’t, even if it costs them revenue? For example, with today’s algorithms, if you like to see hate posts or fake news, revolutionary or destructive posts, Facebook’s algorithms will show you more of those. Whatever changes Facebook says it has made to better control that sort of thing, how far has it gone? Has Facebook demonstrated what its algorithms will be in the future so it can capture the positive aspects of a global media app and eliminate the negative and tragic? 

Will the US Government succeed in taking Facebook to task in court, as they have tried to do and failed? I think not. Why? Because Senators, Congressmen, all politicians cannot get elected without Facebook. So why kill their golden goose?

Does getting elected take precedence over protecting the electorate?

After showing my students the above documentary and their reading the book, they said they were “trying to cut down” on social media time (like trying to quit smoking—never works). And, when asked the question as to whether someone who chooses to advertise on Facebook is also responsible for its ills, their answer was—silence.

Mark Zuckerberg has proven to be the Teflon Don to a degree that John Gotti could not even dream of. So if we accept the fact that Facebook is too big and too much a part of everyone’s lives to control, we can only hope that he sees the light at some point and makes the changes that will address all these recurring issues. If he does, the case might be that Facebook does not lose users; it may gain back those who (like me) have abandoned it and its avatars.

Meet the HENRYs- Your New Target Customer

 

(This is the second in a series about today’s luxury market and customer. If you read my first article, “Are the Roaring 20’s Back?” you would already know that focusing on the luxury market is a key strategy for 2022 and beyond)

What’s a HENRY? Or rather, who are the HENRYs?

HENRY stands for High Earners Not Rich Yet. What does this mean? According to the Wise Marketer, they are mostly Millennials (born between 1981 and 1996, which means they would have been between 25 to 40 in 2021) but overall a household under 55 whose income ranges between $100 and $250K and who have not yet amassed investable assets of $1M.

Many of these HENRY customers have cleared college loans and dependency on their parents or family, and are in a rising income mode; while the Millenial HENRY has not totally done so, their spending is nonetheless rising. With that rising income comes a rise in discretionary spending, more than the Gen X or Baby Boomer HENRYs. 

Let’s look at the entire Millennial generation first. According to Goldman Sachs, they are the largest population cohort: 92 million vs 61 Million Gen X (1965-1980) and 77 million Baby Boomers (1946-1964) and the first generation of Digital Natives.  That said, their debt burden is higher than those of its predecessors, but the Pandemic has started to reverse that.

So why focus on the Millennial HENRY? 

First, they spend more than the other generations within the HENRY group. According to Wise Marketer, Discretionary Spending peaks at age 40, and begins to decline at age 50.  The report cites $86K for Millennial HENRYs as opposed to $67K and $60K for Gen X and Boomer HENRYs. 

And that is only going to get bigger as the younger Millennial HENRYs reach their peak spending years.

What is the customer profile of the Millenial HENRY?

So Millennial HENRYs are a particular bunch with particular requirements which are different from their older HENRY cohorts. How so?

1. Mobile-First Marketing- There have been different numbers at different times, but Millenials make the majority of their purchases on their smartphone and, if you add laptops and tablets, that about does it all.

That said, the luxury market is and always will be a sector that is oriented toward physical stores, due to the price, the service and the overall experience. BUT, digital marketing is becoming a key tool for a ROPO (Research Online, Purchase Offline) or a Showrooming (the opposite of ROPO) strategy, which many luxury customers prefer. Either way, digital presence is key to success in the luxury market as well as all the others.

Millennial HENRYs are ideal luxury customers, but with their own style and conditions. To HENRYs, brands have to fulfill their Aspirational Self; their view of who they are and who they want to be. As well, their Prosocial Signaling and their need for Uniqueness. This certainly applies to luxury fashion, but also determines where they eat, which car they drive, and where they vacation.

More, the Millennial HENRY is comfortable with new technology and adopts that as a signal of who they are. 

Ethics and Sustainability figure for the Millennial HENRY, where they were not a factor for their predecessors.

Make me look good, feel good, feel special about myself and my association with you, brand. And follow my needs, or someone else will.

This is one of the biggest differences between the Millennial Luxury Customer and their predecessor generations: brands have to follow them, not the other way around. Even the big iconic brands like LVMH and Kering are learning that.

For the Millennial, the sacred Four P’s of marketing have become the Four E’s:

• Product >> has changed to >> Experience

• Place >> has changed to >> Everyplace

• Price >> has changed to >> Exchange

• Promotion >> has changed to >> Evangelism  

On Strategy explains:

Experience: Where marketers used to focus on their product, now we must think of the entire customer experience- what does a customer encounter related to purchasing and using your product/service?

EveryPlace: Today, place has become everyplace- there’s just SO MANY methods for conveying your message: IM, SMS, countless social media websites, video games, product placement in places like TV, Movies, internet video clips- the list goes on.

Exchange: With so much on the web being offered for free, pricing has become much different. Words like Freemium, describing how premium services pay for free services offered by the same company would have boggled marketers minds a few years ago.

Engagement/Evangelism: Promotion isn’t enough any longer. With so many more message channels, we can’t just bombard people with messages and hope they’ll pick them up. Companies have to figure out how to get consumers to allow them into their attention spans.

Brands better pay very close attention to the entire experience, from Awareness to Advocacy, or someone else will be glad to do it for them. This is especially important, as well as difficult, in the digital space. 

What happens as Millennial HENRYs get old and start to peak spending? 

Everything they believed and their approach to spending is geometrically multiplied by their followers, Gen Z.

But that’s another subject. Watch this space.

©Michael Serwetz 2021

Are the “Roaring 20’s” back? Yes, but not how you probably think.

There she is- the common image of the Roaring 20’s symbolized by the beautiful Mia Farrow.

An age of joy, abandon, unprecedented riches and living in the moment—until the moment fell apart in 1929.

There has been a lot of talk about this type of wild consumerism coming back post-Pandemic. And maybe it will. But not everyone will attend the wild party.

In 2021-22, the Roaring 20’s WILL dominate the retail scene. But not the era, the income group; the top 20% of earners has grown dramatically, while the bottom 20% struggles with necessities and paying bills.

Let’s take a look:

It is clear to see from the above that the top 20% has lots of wiggle room between their necessities expense and discretionary spending; however, if the bottom 20% wants to spend on something they don’t need, they have to dip into the pot that funds their necessities.

And this:

The combined wealth growth of the top 10% was $17.3 trillion; if we include the top 50%, it was $23.4 trillion. This compared to $1.2 trillion for the entire bottom 50%. So, in terms of wealth and discretionary spending, it will come from the top 20% plus the wannabes and aspirants from the top 50%. The HENRYs (High Earner, not rich yet- typically between $100 and $250K annual income).

So what does this portend for retail?

First, tremendous growth in the premium and luxury sectors. Not just the iconic brands, but the hundreds of new brands that have positioned themselves with the hope of joining the luxury fraternity.

Second, what has come to be known as the Bifurcation of Retail will become more exaggerated. The bottom 50% has to be concerned about price in everything they do; retailers that emphasize and are devoted to the price strategy like Walmart, TJX, Amazon will be their go to shopping destinations.

The top 50% will look for individualistic, higher quality product from the above iconic and emergent premium and luxury retailers.

What is missing here? The middle. Traditionally populated by “balanced” department stores. It looks like they are and will continue to find themselves irrelevant in both high- and low-end consumers retail plans.

Can the department stores reinvent themselves to be the true moderate middle again? To do so, will they give up the 25% because of this plus another 25% because of that and 25% more because we like you to fill their floors with quality, well-merchandised goods that represent fashion and quality at a moderate price point? Even if they want to, do they have the merchants who can do it? Back in the day, we NY department store buyers were good to great merchants who trekked to Paris and Tokyo, and knew what they wanted to buy or develop; the sales floors were not overcrowded or overassorted—they represented our statement of what we believed in. Sound familiar? This is the way Inditex (Zara biggest division) runs its business.

My word is not as good as the facts. Let’s take a look (the following two graphics are from the Deloitte Insights Report (2018). They are even worse (or better, depending on who you are) today:

      

      And this:

The Deloitte report was exposing something that had started to happen years before the Pandemic. We all know that the Pandemic served as the Grim Reaper for many retailers, most in that moderate middle.

Conclusively, the report said, “The great retail bifurcation is the apparent low-end and high-end retailers in accordance with the consumer’s economic situation and, more importantly, in accordance with a close understanding and response to what needs the consumer is expressing.” 

According to the same report (pre-Pandemic), the bifurcation represents an opportunity, a Renaissance, for retailers, big or small, apparel or any industry, who want to pay close attention to the evolving requirements of their target audience.

Such as ethics and sustainability- but that’s another subject. (Author’s note: this is the first in a series of articles about the luxury retail sector in 2021 and the future. Watch this space for more.)

© Michael Serwetz 2021