How Is Facebook Using AI and Reels to Defy Its Decline In Younger Users?

Last summer, Meta was struggling to get users to embrace Reels, the short-form videos directly emulating those of its wildly successful competitor TikTok. But through heavy investment not only in Reels but in AI as well, the social media giant is bouncing back in style, with viewership finally picking up and exploding into life.

2022 was Meta’s toughest year to date

Last year, Meta was challenged on two fronts: the tightening grip on its audience by TikTok, and the broad curtailing of ad spending on a volatile business landscape. Meta’s finances tanked; its stocks were devastated. Its share price plunged almost 25% in just one day—and days later hit its lowest point since 2015. Revenues declined in Qs2 and 3—the first declines of their kind in Meta’s history as a listed company. Profits plummeted. It wasn’t long before the company was announcing cuts to 13% of staff. Toward the end of the 2022, Meta’s stock had begun to recover somewhat, but still saw in the new year down by two thirds, $600bn in market value having vanished into the ether.

The company started to see a little daylight when it accelerated its AI spend, thereby weaning itself off the need for third-party data for ad targeting and enhancing its recommendations of content from accounts that users aren’t currently following. Apple’s recent privacy changes had made it such that iPhone users could opt out of apps tracking their activity more easily than ever, which prevents Meta from matching users’ Facebook and Instagram accounts with their browsing, shopping and app use. This had the effect of stymying Meta’s capabilities to target ads and track when those ads were producing sales. In fact, in February 2022 Meta estimated that these changes would cost the company $10bn in lost sales, equivalent to 8% of its total revenue in 2021.

Meta Is Upping the Ante With Its Computational Work

Meta’s newfound dedication to AI will see it conducting an unparallelled level of data analysis through the detection of more profound correlations in user behaviours, with a view to better predicting which ads they might consider relevant.

One approach the company has tested has seen them bargaining with users to agree to tracking in Meta’s own in-app privacy settings, where it promises to show them fewer ads in exchange for users consenting to providing their data. Elsewhere, Meta is trying to sell more ads that link directly to a messaging conversation with a business. While the company itself readily acknowledges that some of these different attempts will likely flop, it’s nevertheless taking a more ‘venture capital’ approach: investing in a plethora of marketing strategies across the board, and committing to then identifying the most effective come the end of 2023.

Harnessing The Power of AI and Reels

Much of Meta’s present growth is attributable to the growth of Reels. Interestingly, while the company’s own take on the now-ubiquitous short-form video format is most often associated with Instagram and younger users in public discourse, the most avid consumers of Reels are actually Facebook users.

Determining which Reels to show to users is significantly harder than determining which posts to show them, because they see posts from accounts they follow, whereas Reels come from accounts they don’t. Every single Reels recommendation demands intensive work by Meta’s algorithms to calculate which among the endless supply will be most engaging for any given user.

To improve the relevance of its Reels and better compete with TikTok and its highly effective recommendation engine, Meta is prioritising investment in its AI algorithms, as well as running its own recommendation systems on more efficient microprocessors. By producing more granular user data, Meta hopes to enhance its ability to learn what kind of content users want to see—or would be interested in but aren’t yet aware of.

That’s all well and good—but as I’ve made clear to clients at my own marketing agency, Pixated, actually monetising Reels is another matter altogether. The rapid uptick in their popularity created an additional problem for Meta in the short term: ads in Reels don’t currently sell for as much as those sold against regular posts and stories, so their growing share of content consumption was actually putting a dent in ad revenue. To counter this, Meta cut back on Reels promotion to protect its earnings, which led to a decrease in watch time.

All that being said, in the meantime it’s encouraging that Reels appear to be doing the hard work without need for outside assistance. Meta is competing successfully in the red-hot space of short-term video—and, who knows, could even begin to set a course to outcompete TikTok in 2024 and beyond.