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Meta Has a Meta Problem, Not a Metaverse Problem

Mark Zuckerberg has been the internet's favourite villain for the past decade. Untouchable by even the US government, and impervious to Covid-market weakness, Zuckerberg's reign over web2 is unmatched, unrivalled, but bitterly unpopular.

However, with the acceleration of web3, Zuckerberg's villainous throne has been challenged by the likes of Su Zhu, Do Kwon and most recently Sam Bankman-Fried. That aside, Zuckerberg's empire has failed to retain its dominant incumbency in the dawn of web3, and Meta stakeholders are paying the price. Its metaverse embrace, which even led to a complete rebranding from Facebook to Meta, has proven to be a thorn in the web2 giant's side, but is it a reflection of the wider metaverse landscape?

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11,000 Metamates can't be wrong

Earlier this month, Meta announced an 11,000 job cut equating to 13% of its workforce. Consequently, Meta's stock price, which was already falling, crumbled even further to lows not seen since 2016.

Citing the "surge of e-commerce leading to outsized revenue growth" during the pandemic, Zuckerberg said this acceleration was expected to be permanent, but it "did not play out the way [he] expected."

"I got this wrong, and I take responsibility for that," Zuckerberg so valiantly said.

Looking a bit deeper into Meta's financials, one will learn that their metaverse investments are truly serving as a hole in the bucket. Whilst revenue and operating income took a hit in Meta's Facebook and "other apps" business, the losses in its metaverse arm Reality Labs are gravely concerning.

Reality Labs lost a whopping US$3.7 billion in Q3, bringing in only US$285 million, a decline of 49% from a year ago. "We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year," Meta further admitted. "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."

Image Credit: Bloomberg

Meanwhile, Facebook and Instagram brought in almost all of the US$116 billion in revenue analysts expected. The logical conclusion is that Meta's spending on its metaverse has led to the significant job cuts and ultimately financial trouble.

Virtual Reality is not reality for the metaverse

Meta centred their metaverse marketing largely around VR. Having acquired Oculus in 2014, Meta had been sitting on VR technology, making incremental advancement until the time was right. With everyone locked indoors with pandemic blues, Zuckerberg thought the time was now. You can't blame him here either, metaverse chatter was increasing from other platforms, and the push from web3 fans seemed stronger than ever.

Well, he wasn't completely wrong. According to Android Central, Meta's flagship VR device Quest 2 has sold 14.8 million units, eclipsing Microsoft's Xbox Series X/S, which has sold 11.4 million. Furthermore, VR Sales grew 97% in 2021 and 242% in 1Q22.

.@MetaQuestVR OculusQuest2 is the most successful #VR headset to date. With nearly 15mn units sold since its announcement at @facebook Connect 7 in Sep 2020, the Quest2 has contributed to massive growth in VR sales & consumer adoption🏆

👉VR Sales grew 97% in 2021 & 242% in 1Q22 6, 2022

However, being the top selling VR device isn't enough. Part of the Quest 2's appeal is its very affordable price tag of US$299, which is US$100 less than the original Quest sold for. The price point, although alluring, is leaving many to suspect that Meta is selling the headsets at a loss.

"That price seems too good to be true, with no other manufacturer's VR headset close to the specs list of the Quest 2," writes PC Gamer. "In fact, we're convinced that Facebook is making a loss on each unit sold."

Essentially, Meta might be selling the most VR headsets but its balance sheet isn't benefitting from it. Furthermore, VR might not even be necessary for the development and future of the metaverse; at least not in the way Meta is doing it.

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Guo Cheng, the founder of STEPVR, criticises Meta for focusing too much on achieving "vision "perfection."

"Meta has decided to pour all its resources to over-obsess on just one thing, vision perfection," Cheng writes in his blog. "This is not enough. Meta’s four VR prototypes completely miss the point in setting the industry standards."

"Focusing too much on the quality of the visuals is not even realistic for Meta to pull off," he continues. "Their prototypes cannot be commercialized easily and certainly they will not be ready within a five years time window."

For some developers, VR isn't even essential for the survival of the metaverse. Kriskay Choo, chief strategy officer and co-founder of CGame, described VR as "part of the entire process."

"[VR] is not an element that is going to decide the success or failure of the metaverse," Choo said to Blockhead. "It's like how we used to communicate via email and then with a phone we had applications like WhatsApp and Zoom etc to enhance the experience. VR itself is not key."

However, Choo does see a future for the technology. "When the hardware becomes more readily commercially affordable, I think then API's will be integrated. It's just time."

Even metaverse creators The Sandbox is skeptical about VR. "I think it's erroneous to say VR is the metaverse," global operations manager Yohan Lee told Blockhead. "It is only one of the visual expressions of the metaverse. The metaverse can be 2D or 3D, VR is just one of the genres so that's why we are not too concerned about VR."

"VR has been in the market for a long time," Lee continued. "Meta tried to leverage on the metaverse opportunity to give a new momentum but the metaverse is not VR, it's just part of it."

George Wong, growth head of Singapore for The Sandbox, said his firm's "focus is on accessibility" and "VR technology is still very cost prohibitive. To bank fully on VR being the only gateway into the metaverse, well then you have a very small pool of people at this point in time. VR is an interesting tech, no doubt, but it's just one of the user interfaces into the metaverse."

Meta might be selling more Oculus headsets than competitors, but it's clear that the success or failure of VR is not the key to being successful in the metaverse. Considering Meta is spending gargantuan sums of money on VR R&D whilst selling Oculus at a loss, VR might have just been a pitfall for Meta, rather than interest in the metaverse.

Decentralized vs. centralized metaverses

Whether it's crypto, blockchain tech or the metaverse, "decentralisation" is web3's favourite buzzword. Meta, which obviously operates as a "centralised" company from a web2 era, has attempted to bridge web2 and web3 by continuing its "centralised" approach in its metaverse. This has not gone down well with web3 and metaverse enthusiasts.

Lim Soon Ying, CEO of Web3re Technologies, which curated the Goya Universe, said Meta's metaverse was too much of a web2 product. "The metaverse that Zuckerberg is doing is more of a social platform," Lim said to Blockhead.

"Facebook has always been about owning customer data," he elaborated. "The pushback it is experiencing is from a lot of people saying 'I don't want you to own my data anymore, I want to decide who gets to see my data and how i get remunerated'. Meta is still very much a closed centralised platform, whereas the web3 community is all about owning their own data."

Wong echoed a similar message. "One of the advantages of a decentralised metaverse is that we leverage on the ecosystem. We've got studio partners, we're helping people monetize from this space rather than try to do everything ourselves. If we tried to build every experience ourselves, we would be burning money." Was money really the problem behind Facebook Meta's layoff? #meta #facebook #metaverse #sandbox #web3 #sgnews ♬ original sound  - blockhead

Lee agreed. "The metaverse Meta wants to achieve is very different form the metaverse The Sandbox thinks the metaverse is," he said. "For The Sandbox, a true metaverse is open and decentralised. In the long term, we believe this will eventually become a superior model compared to metaverse platforms that are actually closer to existing online virtual platforms."

For Lee, the value of decentralisation is a core mechanic for a successful metaverse. "We want every participant to grow together. That's how actual society works. Without ownership through NFTs, I think it's really hard to give value to users here. Even in reality, what makes the society and economy work is a thing called ownership."

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Choo also highlighted that decentralized metaverses can leverage on 11,000 creators who are not employees, compared to 11,000 workers at Meta.

Does anyone even want a metaverse?

Theorising whether Meta actually secured a grasp of a "real metaverse" is all well and good but is there even an appetite for the metaverse? In October, data from DappRadar suggested Decentraland and The Sandbox each had fewer than 1,000 "daily active" users. Could Meta's downfall been a result of the market simply not being ready for Zuckerberg's metaverse, centralised or not?

Lim admitted that the negative sentiment "does scare" them, but said "we are actually very positive on using the metaverse for education to execute synchronous and asynchronous learning to create a more virtual environment for students. Right now there is data to show that there's an appetite for that."

Image credit: Roblox

Wong also pointed towards different generations adopting the metaverse differently. "Younger millennials, Gen Zs and even the new alphas are basically in some sort of metaverse already. The whole narrative that metaverses have no one there, it's not true. The metaverse is still being defined."

Indeed, a recent Roblox survey of 1,000 Gen Z community members in the U.S. between ages 14-24 showed that 75% of Gen Zs said plan on spending money on digital fashion. 70% said they would even dress their avatars similar to their real life self.

Choo refuted the claim that "No one wants a metaverse," stating that the response comes "from the general public of a certain age group." According to Choo, those born after the year 2000 were "essentially born into the world of metaverses."

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He argues that companies that sell collectibles have seen success, which also echoes the appetite for digital collectibles. "Even during the COVID period, companies likes Pop Mart were doing extremely well," he said. Pop Mart is known for its collectible fan fueled figurines.

"They are figurines with new IPs," he continued. Within three years Pop Mart got listed in Hong Kong. If you're saying that no one wants a metaverse, why would consumers already be purchasing items that allows them to be more relatable to the metaverse?"

It's already 𝐖𝐞𝐝𝐧𝐞𝐬𝐝𝐚𝐲.3️⃣
📺My plan for today includes binge-watching 𝐖𝐞𝐝𝐧𝐞𝐬𝐝𝐚𝐲 with my favorite 𝐏𝐎𝐏 𝐌𝐀𝐑𝐓 𝐒𝐊𝐔𝐋𝐋𝐏𝐀𝐍𝐃𝐀 𝐗 𝐓𝐡𝐞 𝐀𝐝𝐝𝐚𝐦𝐬 𝐅𝐚𝐦𝐢𝐥𝐲 𝐒𝐞𝐫𝐢𝐞𝐬.
What about you?😴#popmart #wednesday #popmartglobal #addamsfamily 30, 2022

Choo criticised the mainstream media for getting responses from demographics that do not like the metaverse. "I understand because the metaverse disrupts their business models and lifestyles, and maybe it's killing their cash cow."

He also pointed towards the anti-crypto sentiment in today's climate. "They say no one wants crypto but 10 to 12 years down the road we will see web3 and blockchain playing a very important part of how the future is being shaped."

Wong suggested that the negative sentiment is a "bias," especially after being "indirectly affected by FTX and Luna." Data surrounding metaverse users is also skewed according Wong. "Even the media itself that reported low users may not have clarified what the data was based on. For example, if it's based on blockchain transactions, well, you don't need to transact to be in the metaverse. The media wasn't being very fair."

So it seems that the metaverse, as a technology, is still attracting the attention of youngsters. Meta's failure to capture audiences to their metaverse would thereby seem an error internally as opposed to a wider metaverse issue.

Meta's biggest mistakes

From speaking to industry leaders, it seems that Meta fell for three primary reasons: spending too much on VR which is not crucial for the metaverse, spending too much on building a centralised metaverse and spending too much on gatekeeping.

As Wong said, "in terms of Meta, [their problems] were not because of the money, it's because they tried to do everything themselves. It's not that Meta was building a metaverse, that wasn't the problem. It was how much they spent, and how little they got. That's why they had cost cutting deductions to manage their bottom line."

Lim simply summarised Zuckerberg's vision as being too ambitious. "Zuckerberg is preparing for technology that does not see necessary. The market is not ready for it and doesn't find it necessary. That's why there was too much money spent. I can't comment on the billions of dollars he spent on avatars that have no legs!"

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Although Meta's fall is not representative of the wider metaverse space, nor the desire for establishing metaverses, Meta's failings still offer insights into how not to run a metaverse project. That said, it's certainly not game over for Meta.

For 2023, Meta has already pledged to dedicate 20% of its invesements on the metaverse, which is actually 2% higher than its 2022 spending. A 20% investment in futuristic technologies is a “level of investment we believe makes sense for a company committed to staying at the leading edge of one of the most competitive and innovative industries on earth,” CTO Andrew Bosworth said.

Furthermore, like it or not, Meta is too big to fail, as a company at least. Laying off the 11,000 employees is a serious cost cutting measure but the reallocation of funds could see Meta's metaverse rise in future.

Of course, Meta will unlikely relinquish control of its metaverse, meaning decentralisation won't be on the cards, but underestimating Zuckerberg in the long run could be foolish. A centralised metaverse might not be a web3 nerd's wet dream, but perhaps Meta can eventually pull it off. It certainly needs to.