Facebook is in a race against time to make its metaverse a success

Meta, formerly known as Facebook, is betting its future on the success of its virtual reality platform. But this project is losing too much money and we don’t know how long the company will be able to keep it alive.

About a year ago, Meta was the fifth largest publicly traded company in the world, behind Apple, Microsoft, Alphabet and Amazon. Now the company is at 25e place, behind Home Depot.

Meta has seen its financial health decline across the board. Revenue fell more than 4% in the third quarter, year over year. Administrative expenses increased, while profits were halved.

The company admitted it had over-hired in recent years, announcing the layoff of 11,000 employees and a hiring freeze until March.

But the bigger factor appears to be the money pit created by Meta’s virtual reality division, Reality Labs, which has racked up an operating loss of more than $21 billion over the past two years, including more than 3 .6 billion dollars for the third quarter of 2022 alone (pdf).

Meta CEO Mark Zuckerberg told investors he expects those losses to continue to pile up. The company predicts that it will take years for the VR effort to come to fruition.

“I appreciate patience. And I think those who are patient and invest with us will eventually be rewarded.”Mark Zuckerberg said on the third quarter earnings conference call (pdf).

Whether Meta will be able to stay afloat while waiting to be paid, if that happens, remains to be seen.

Meta’s business model relies heavily on profitably exploiting information collected from users on its Facebook and Instagram platforms — serving them targeted ads. Its collection of information, however, has been significantly limited by a new feature in Apple’s operating system that now allows users to easily block phone apps that monitor their activity.

At the same time, younger users have been more attracted to short video platforms such as TikTok. It was only last year that Meta started to catch up with its feature “Facebook Reels”an apparent copy of TikTok.

While Facebook’s user numbers have continued to grow, the growth is coming from non-US markets, where Meta is only able to capture a fraction of the advertising revenue per user it enjoys in North America.

The company has attempted to reinvent itself, changing its name from Facebook to Meta last year and focusing primarily on the virtual reality division, having launched production of Meta’s virtual reality hardware, VR headsets and controllers, as well as applications and virtual space, the “Metavers”as Zuckerberg calls it.

Zuckerberg enthusiastically promoted the Metaverse, saying that much of the work and play in the future will take place in its virtual world. He has pledged to invest $150 billion over a decade in this project.

To date, however, results have been mixed.

Meta’s VR headsets have received very positive reviews and sold well. Some 6-7 million Quest 2 headsets shipped last year and are currently selling for around $400 a piece. The latest, the Quest Pro, offers improved graphics and controls, but for around $1500.

In contrast, Meta’s virtual environment platform, called Horizon Worlds, received a cold reception, if not derided. Meta claims some 200,000 monthly active users, less than half of what was expected for the end of the year. Online videos show simplistic graphics and “worlds” either empty or populated by a handful of users.

The most frequent criticism is that avatars controlled by users to interact with the environment and their partners do not have legs. Zuckerberg promised new avatars with legs “later next year”.

According to users, this virtual world does not help them enough to understand what they have to do there.

There are some indications that Meta may be turning his Metaverse into some sort of office. Meta has entered into a partnership with Microsoft to ensure the integration of its Office applications into the virtual world. Additionally, Meta’s hugely expensive new headset appears designed to allow users to create a functional workspace in the virtual environment, with floating screens and avatar-to-avatar meetings between co-workers.

For some, the virtual office is fun. Others doubt workers’ appetite for more virtual meetings after several years of video conferencing held during Covid-19 lockdowns.

However, by focusing on the virtual workspace, Meta could target direct marketing to businesses. Thus, Meta could increase its user base thanks to the contracts concluded with the employers.

Moving the labor sector to the Metaverse still presents several hurdles.

The majority of VR users experience some sort of nausea after spending some time wearing the headset. Women and the elderly seem more susceptible. This discomfort seems to lessen over time, but for many it persists, according to the studies.

Then there are the privacy issues.

VR headsets and controllers use multiple cameras to scan the user’s face, body and surroundings, allowing the system to collect a treasure trove of extremely personal data, right down to tracking eye movement. It is not yet possible to know how far this type of data could lead to predict or even influence user behavior.

Some users have expressed concern about the transmission of this data to Meta, especially since the company notoriously struggles to respect user privacy. The company has repeatedly apologized for its handling of privacy issues.

While Mark Zuckerberg seems fully committed to this effort, he still has to satisfy investors along the way.

As the economy braces for a recession, Meta could see its ad revenue shrink, making it harder to convince shareholders to pump billions into Metavers. However, Zuckerberg seems confident that he just needs a little more time, which is likely to be the thing he will sorely miss.

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Facebook is in a race against time to make its metaverse a success


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