Facebook in Race Against Time to Turn ‘Metaverse’ Into Success

Meta, formerly known as Facebook, is betting its future on the success of its virtual reality platform. But the project is hemorrhaging money so quickly, it begs the question of how long the company can keep it going.

About a year ago, Meta was the fifth most valuable publicly traded company in the world, trailing only Apple, Microsoft, Alphabet and Amazon. Today, it is number 25, behind Home Depot.

Meta saw measurements of its financial health across the board. Revenue fell by more than four percent in the third quarter, year over year. Administrative costs rose, and profits halved.

The company admitted it went on too much of a hiring spree in recent years, announcing layoffs of 11,000 employees and a hiring freeze until March.

But the biggest factor appears to be the financial drain of Meta’s virtual reality division, Reality Labs, which has accumulated an operating loss of over $21 billion over the past two years and lost more than $3.6 billion in the third quarter of 2022 alone (pdf ).

Meta CEO Mark Zuckerberg told investors he expects those losses to climb even higher, as the company expects the VR effort to take years to mature.

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

The question is whether Meta can keep afloat until that payment comes – if it does.

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Meta’s business model is largely based on valuing users’ information on its Facebook and Instagram platforms – serving them targeted ads. However, a new feature of Apple’s operating system that now allows mobile users to easily block apps from monitoring their activity has significantly limited its information collection.

Meanwhile, younger users are increasingly attracted to short video platforms like TikTok. Meta only last year started taking up its Facebook Reels feature, an apparent TikTok copycat.

Although the number of Facebook users continues to increase, the growth is coming from non-American markets where Meta is only able to capture a fraction of the advertising revenue per user that it enjoys in North America.

The company has tried to reinvent itself, renaming from Facebook to Meta last year and focusing mainly on the VR division, which is responsible for producing VR Meta hardware – headsets and controllers – as well as the apps and space virtual — the “metaverse,” as Zuckerberg calls it.

Zuckerberg has enthusiastically promoted the metaverse, arguing that much of people’s work and leisure will take place in the virtual world in the future. It is promised to invest $150 billion in the project over a period of ten years.

So far, however, the results have been mixed.

Meta’s VR headsets have enjoyed mostly positive reviews and solid sales. The Quest 2 model shipped about 6 million to 7 million units last year and currently sells for about $400. The newest addition, the Quest Pro, offers improved graphics and controls, but for about $1,500.

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On the other hand, Meta’s virtual environment platform, called Horizon Worlds, suffered a cold reception and even ridicule. Meta claims about 200,000 monthly active users, less than half of what it had hoped for by the end of the year. Online videos show simple graphics and a “world” that is empty or has a few users.

One of the most common criticisms is that the people control avatars to interact with the environment and do not have legs. Zuckerberg promised new avatars with legs “later next year.”

Users have also complained that the virtual world doesn’t do a good enough job of helping them figure out what to do there.

There are signs that Meta may be preparing its metaverse to become more of an office. It has partnered with Microsoft to ensure that its Office apps will be integrated into the virtual world. Also, Meta’s new priced headset appears to be designed to allow users to set up a functional workspace in the virtual environment, with floating screens and avatar-to-avatar meetings with co-workers.

Some reported that they enjoyed the virtual office. Others question whether workers have any appetite for more virtual meetings after several years of video conferencing during the COVID-19 lockdown.

However, a focus on the virtual workspace suggests that Meta may focus on marketing it directly to corporations. This would enable it to increase its user base as per the employer’s mandate.

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Moving activities to the metaverse still faces some hurdles.

Most VR users experience something like motion sickness after spending some time with the headset. Women and the elderly appear to be more susceptible. The sensation seems to diminish with repeated exposure, but for many it persists, some surveys show.

Then there are the privacy concerns.

VR headsets and controllers use multiple cameras to scan the user’s face, body and surroundings, allowing the system to collect a wealth of highly personal data, down to eye movement tracking. It’s not yet clear how far that kind of data can go in predicting or even influencing user behavior.

Some users have expressed concern about giving such data to Meta in particular, since the company has a poor record of preserving user privacy. The company has repeatedly apologized for its handling of privacy issues.

Zuckerberg seems fully committed to the effort, but he still has to make investors happy along the way.

With the economy teetering on recession, Meta could see its ad revenue shrink, making it harder to explain to stockholders why pouring billions into Meta is a good idea. However, Zuckerberg seems confident that he just needs a little more time, and that may be all he has going for him.

Peter Svab


Petr Svab is a reporter covering New York. Previously, he covered national topics including politics, the economy, education and law enforcement.


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