Meta Platforms’ CEO ignores Wall Street’s demand to cut metaverse costs.
Perhaps the future will prove the daring Mark Zuckerberg right.
Maybe he will win this bet for the metaverse, which has positioned him almost in opposition to Wall Street. Perhaps even today’s detractors will profusely apologize to him and kiss his feet.
“Zuck the Fourteenth,” — an apparent reference to the French king, famous for his hubris and excess, Louis XIV, as Elon Musk nicknamed him — lived up to his name when he announced on October 26 that Facebook, now called Meta Platforms (META) – Get Meta Platforms Inc. Report, would continue to invest heavily in the metaverse.
“Our growth in cost of revenue is expected to accelerate, driven by infrastructure-related expenses and, to a lesser extent, Reality Labs hardware costs driven by the launch of our next generation of our consumer Quest headset later next year,” Meta said, referring to the division that houses the metaverse projects.
Big Losses + Power
These investments will not, however, pay off in the short and medium term, the company warned, seeming to prepare investors in advance for additional disappointments.
“We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year. Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run,” Meta said.
Basically, Zuckerberg continues to believe in this concept, which has already gobbled up nearly $20 billion since 2021. Yet for weeks, Wall Street has sent a clear message to the young billionaire which can be summed up as: come back to reality and abandon this distraction. And in case he hadn’t heard, stock prices are there to remind him.
Meta shares are down more than 70% since January, translating into a market value crash of around $633 billion. In another company, there would already be calls by the shareholders to replace the CEO. But Zuckerberg has power. He controls the votes through special action shares (Class B). He cannot therefore be voted out.
What does he see in this metaverse? Let’s start with how he defines it. For him, it’s an immersive 3D world in which we will interact via virtual reality headsets and goggles. Meta manufactures this hardware, which represents a source of revenue.
The company will also take a cut of nearly 48% on revenue generated by creators using its metaverse, known as Horizon Worlds. The problem is that by doing so, he bets on the fact that many people will be as interested in the metaverse as they are in social networks.
Meta’s platforms – Instagram, Facebook and WhatsApp – have a combined audience of 3.7 billion users who log in regularly, the firm said. Maybe by analyzing the data related to these users, Zuckerberg felt that there is a need by users to alternate between the real world and the virtual world.
Let’s assume that there is such a need for a virtual world to escape the complexity of real life. Nothing says that Meta will dominate the metaverse as is the case with social networks. There is another version of the metaverse developed by startups like the Sandbox and Decentraland, which does not require a virtual reality headset. Also, their commission is very low compared to the commission imposed by Meta.
Additionally, users will keep control over their data. It is obvious that this vision of the metaverse is more appealing. Meta will, therefore, face strong competition from the start. It won’t be able to dominate as it does with social networks.
No offense to Zuckerberg, the metaverse is asking us to live continuously on a computer. This is not tenable, as technology already occupies a dominant place in our lives. We need airlocks, and diving back into a tech-dominated space doesn’t bring that balance.
Another thing: will people living in favelas and ghettos return regularly to the metaverse, which gives them the illusion that their life is magnificent in contrast to reality?
If social networks are successful, it is also because they allow us to connect with friends, family, real people.
The metaverse, as Zuckerberg defines it, aims to make us live in a virtual world, as an escape from the real world. It can have its benefits, but then it becomes like going to the movie theater or treating yourself to a good restaurant from time to time.
And that’s the whole problem: from time to time. It’s not clear that from time to time deserves billions and billions of dollars of investment.