Meta Platforms (Meta), the parent company of Facebook and Instagram, is feeling the heat as 33 U.S. states are suing the social platform.

The lawsuit claims that Meta purposefully gets teens hooked on social media by using sneaky algorithms, causing serious mental issues like depression and anxiety.

Meta has also reportedly violated the Children's Online Privacy Protection Act by secretly snatching personal info from kids under 13 for ads without parental consent. Adding fuel to the fire, nine more states are planning to jump on the legal bandwagon against Meta.

The problem for Meta isn’t just the lawsuit; it’s also the legal red flags being raised about its business model.

Meta exploits young users

The lawsuit claims Meta has exploited young users with its business model designed to maximize the time they spend on its platform despite the threat of health concerns from digital addiction.

New Jersey's Attorney General Matt Platkin said: “Profits—not people, not its most vulnerable users, children and teens—drive the decision-making at Meta. That stops today.”

Meta released a statement in response to the lawsuit, saying it “shares the attorney general’s commitment to providing teens with safe, positive experiences online, and has already introduced over 30 tools to support teens and their families.”

“We’re disappointed that instead of working productively with companies across the industry to create clear, age-appropriate standards for the many apps teens use, the attorneys general have chosen this path,” Meta said.

Not everyone agrees that either digital usage or social media are classified as addictions.

As of the latest edition of The Diagnostic and Statistical Manual of Mental Disorders used by the American Psychiatric Association, there is no official diagnosis for social network addiction or internet addiction.

Meta’s business model and profitability

Meta's revenue stream thrives on data collection and targeted ads, a strategy championed by CFO David Wehner. He emphasized its importance in driving advertising growth during a January 2019 earnings call.

“In terms of our ability to continue to grow the advertising business, it’s about working to develop the best—the best products we can to enable advertisers to achieve their end business results. Targeting obviously is very important in that,” he said.

Meta keeps users engaged through its recommendation algorithms, which prolongs the user’s presence on the platform. This, in turn, enables Meta to gather additional user data and deliver a higher volume of ads.

This ad business model isn't exclusive to Meta. YouTube, TikTok, and plenty of other sites do the same thing.

Yet, New York’s Attorney General Letitia James singled out Meta for profiting off “manipulative features” that make children addicted to social media.

While estimates vary, it’s reported that the average user spends 2.5 hours a day on social media, which is equivalent to 864 hours every year. That attention span is big business for companies like Meta.

During the third quarter, Meta reported a revenue of $34.15 billion, exceeding the expected $33.56 billion, marking a 23% year-over-year growth.

CEO Mark Zuckerberg highlighted a 7% increase in overall time spent on Facebook and a 6% increase in time spent on Instagram, attributing this growth to “recommendation improvements.”

Meta's short-form video platform, Reels, has played a major role in the 40% increase in time spent on Instagram since its launch and continues to perform well.