Meta Writing-off Its $36Bn Metaverse Bet?
Two years ago, Zuck went all in on Metaverse. Now, he has tossed away the fantasyland for something more lucrative! Read on.
Zuckerberg's decision to go all-in on Meta has been publicly ridiculed. But was it really Zuck's fault?
Imagine reaching the heights of success like Facebook did. They managed to stay at the top, acquire the ones on the top and even copy them to remain relevant for almost 2 decades!
When you are that high up, the biggest worry is falling.
For Facebook, finding the next big thing wasn't just something they could do if they wanted to – it was something they had to do.
October, 2021: The Metaverse Entry
After years of constant innovation and algo-training, Facebook had successfully hooked us onto it.
Most people had just one routine, day in and day out: wake up, doom scroll, eat, doom scroll, sleep. Repeat.
The world was happy with its daily dose of dopamine via Facebook and Instagram (Facebook acquired Instagram in April 2012 for $1 billion).
Until..
In October 2021, Facebook announced a dramatic shift in focus:
Facebook was no more Facebook. It was to be called ‘Meta’.
This indicated the company's focus towards Metaverse as the next big thing.
This wasn't just a rebranding; it was a reinvention.
Facebook, started with the vision of connecting real people, was now deep into creating a virtual world with digital avatars.
With an investment of a mind-boggling $36 billion, Zuckerberg wasn't just dipping his toes in the Metaverse; he was diving in headfirst.
And the man sure knows how to create a buzz.
All the news headlines covered one single thing: The Metaverse.
And this was coming from Zuckerberg.
The very man who got real humans addicted to a mobile screen, only to later drive them to be a part of a virtual world!
But, alas.
As time progressed, the buzz around Metaverse started to die down.
The world began to view the Metaverse as a high-tech fantasy, a fad that might soon lose real interest (humans are social beings, after all, you know).
Maybe Zuck got it all wrong this time around.
But was Zuck convinced?
Not until he was hit by a harsh reality check.
Reality Labs, the division responsible for the Metaverse projects, reported a loss of ~$24 billion in 2021 and 2022!
The monthly user growth was also stagnated:
Increasing competition from short-video platform TikTok also contributed to the stagnant user growth.
A significant blow came from privacy measures implemented by Apple, as it tightened the app tracking transparency feature.
Cost of this?
$10 billion in advertisement revenue, a substantial 8% of its 2021 revenue!
Result?
Meta's share price plunged by more than 20%, erasing approximately $200 billion from its market capitalization.
Well, Metaverse adoption also resulted in a personal net worth loss for Zuck.
Since the Metaverse adoption, he has lost over $100 billion (as on Oct 2022)!
Huge price to pay for a fantasty world, no?
Not really. While a cat has only 9 lives, Zuck surely has more.
2023: Meta’s successful jump on the AI bandwagon
While generative AI opened the world of AI to us, the commoners, AI itself was no new beast for the folks at Meta.
In fact, AI is a building block for Meta to build Metaverse and they have been investing in this technology for years.
They had everything that was needed to give Meta a fresh lease of life. They just hadn't paid enough attention to it.
And while Zuck may have been the one to give Meta all the pomp and show, he sure isn't one to sit out on a popular trend.
While they made no formal announcement yet, he seems to be shifting gears again.
In February, Zuck posted that Meta is creating a new top-level product group focused on generative AI.
Soon, it launched its assistant, Meta AI, pretty much like ChatGPT-4.
The company's focus on using recommendation AI to drive engagement resulted in a 7% increase in engagement and a 31% increase in ad impressions.
This has resulted in growing revenue and reducing expenses, eventually, a rise in free cash flow (despite a $28 billion investment in AI-based capital expenditures).
In the short term, the company is focused on building ‘creative and expressive AI tools’- something that the market wants.
In the long term?
It plans to focus on building AI personas that people can use in different spheres of life (can't get over digital avatars, Zuck?).
Eventually, these avatars will have profiles on Facebook and Instagram (ahem, Metaverse 1.0?)!
Who says you can't have a cake and eat it too?
Zuck surely can.
He made users happy by giving them what they wanted.
He made investors happy by improving the company's financial health.
And, he didn't have to compromise on his long term goal!
Could it get any better than this?
Well, well, well.
Time and again, human behaviour has proved one thing: the future is truly uncertain.
What might seem like the ‘next big thing’ today, may just turn out to be a fad and die down in a few years time.
While the rise of AI looks impressive, it only remains to see if this short-term shift in focus for Meta will be a good move. And what if Zuck turns out to be correct in the long run about his Metaverse dream?
Well, we only have questions. What does the future hold?
Only time will tell…
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