Meta’s Problems Persist and While the Enterprise Will Help Its Metaverse Efforts, It Needs to Share More Details

On October 11, 2022, Meta held its Meta Connect event. In addition to announcing its new Quest Pro device, the company made an important announcement with Microsoft about the metaverse. The two companies have announced a partnership that will see aspects of Microsoft Teams, Windows, Office, and Xbox Cloud Gaming coming to Quest 2 and Quest Pro devices. More specifically, the following services and features were announced as part of this partnership.

• Microsoft Mesh for Teams will support Quest hardware for avatar-based meetings, with support for Teams meetings held from Horizon Workrooms (Meta’s immersive collaboration platform).
• Windows 365 will be integrated with Quest, bringing personalized apps, content, and settings. Microsoft 365 (formerly Office 365) will also be supported on Quest devices and displayed as a 2D interface.
• Microsoft Intune and Azure Active Directory will also be integrated with Quest 2 and Pro for security and device management.
• Microsoft Xbox Cloud Gaming will be coming to the Meta Quest Store, although most indications point to regular cloud gaming on a virtual screen in a Virtual Reality (VR) environment rather than cloud VR games.

These announcements were certainly made to assuage some investors’ growing concern and frustrations with Meta’s continued high investments into its Reality Labs aspirations and headwinds faced by its core businesses. Despite these efforts, perception remains largely negative, with Meta’s share price closing at US$93.16 on October 31, 2022. The shares are down from an all-time peak of US$382.18 on September 7, 2021, and from the start of the year on January 4, 2022, at US$268.94, marking a 75.6% decline from the peak and a 65.4% decline from the beginning of this year.

Meta’s Reality Labs division has hit the company’s bottom line with a US$10.2 billion loss in 2021 and a US$9.4 billion loss through the first nine months of 2022. Not only will Meta lose more money in 2022 on Reality Labs, but CEO Mark Zuckerberg has also stated his intention to spend even more in the years to come. Zuckerberg remains steadfast in his commitment to Meta’s Reality Labs division, but does the market potential justify this level of investment? And will these new enterprise features help right the ship? Clearly, many within the financial industry would argue no—Meta simply cannot compensate for the losses in its core business or the spending rate on Reality Labs.

With these issues, Meta and those weighing in on Meta’s position may benefit from an inspirational quote, and while there are many quotes about changing the world, this one seems to fit well: “This is what happens when you work to change things. First, they think you’re crazy, then they fight you, then you change the world.”

There are similar quotes to the one above, but the main points fit Meta’s (and Zuckerberg’s) case well, especially given the very transformative changes when talking about the metaverse. There is one issue worth noting, however—this quote is attributed to Elizabeth Holmes, the founder of the fraudulent company Theranos. While there are no parallels to be drawn between Meta and Theranos as business entities, there are some commonalities in how people are starting to view Meta’s messaging. For those seriously questioning Meta, Zuckerberg, and the metaverse in general, there is a parallel to make with Elizabeth Holmes and Theranos. Both are viewed as building (or having built) a house of cards, with the expectation that the company will eventually come crashing down (as it did for Theranos). The main difference is that one company was built on lies and the other (Meta) is based on either unobtainable goals or a product that not enough people actually want. Further, the quote brings to light that those outside of Meta don’t know everything that is going on behind closed doors. This should give some pause to the naysayers. Hopefully Meta has a better road map to its long-term future than anyone outside of the company is privy to.

This is a critical point because Meta as a company is caught between the proverbial rock and a hard place. On the one hand, Meta’s core business is getting challenged by new entrants—such as TikTok that has pushed the video market to short-form video—while Meta is trying to catch up and adapt. Their ad business is getting hit by changes to privacy trends—such as Apple’s changes to its IDFA tracker (and potential in-app-purchase charge of 30% for social media “boosts”)—and regulatory issues. The future isn’t going to get easier as control shifts to end users over their data. What can we expect from Meta’s partnership with Microsoft?

The partnership will certainly help, but (as stated earlier) it will not be enough to counter the current issues. Admittedly, its current Horizon platform (both consumer and Workrooms) is not viewed favorably by most, so it isn’t a high bar to clear. However, this arrangement will bring significantly more exposure as Teams reaches over 250 million users compared with Horizon’s last reported 300,000 users earlier in 2022. Users will get further acclimated to 3D, and VR users will see better integration into existing workflows—all of which are necessary steps toward building the future metaverse. Despite these positives, it won’t be enough to counter the issues Meta is facing. This is the reason many are calling for Meta and Zuckerberg to curtail its Reality Labs spending.

A note: When referring to investments into Reality Labs, I am being deliberate in calling it as such (Reality Labs) and refraining from referring to it as the metaverse as many are doing colloquially and in the press. When people reference the metaverse in context to Meta, thoughts typically go to Horizon and Oculus, but there is far more to Reality Labs than is known.

The level of concern directed at Meta regarding its Reality Labs’ investments and aspirations is harsher than it should be. Meta and Zuckerberg deserve more faith than they are currently receiving regarding their plan execution and future road map. Meta is still a more than US$100 billion per year company and has been a successful publicly traded company for over a decade. Only in these past two quarters has posted Year over Year (YoY) declined. Further, Facebook’s name change to Meta was not a kneejerk reaction to looming troubles with its core businesses or purely an attempt to distract from ongoing controversies. Recall that Facebook acquired Oculus for US$2 billion in 2014.

The problem is an issue of timing and a matter of framing. If these headwinds against Meta’s core business were not an issue, the perceptions around Reality Labs’ spending would likely be markedly different. For example, if Meta’s profitability in the first nine months of 2022 maintained the average 2021 profitability level for its “Family of Apps,” the total profitability for 2022 in the first nine months would have been positive versus down US$11.6 billion YoY. Even with this situation, Meta’s spending in Reality Labs is likely not what most point to when they think of the metaverse.

It is not accurate to say that the high investments in Reality Labs are all metaverse related and then use the poor experience and questionable visuals of its Horizon platforms as evidence that these efforts are doomed for failure. Even if Quest and its efforts around VR are included, much is not known about Meta’s investments in Reality Labs—for example, what are Meta’s plans regarding smart glasses, a key addition to Reality Labs’ portfolio? Meta also invests heavily in infrastructure and broadband accessibility—all potential sources of Reality Labs spending as well. Many large tech companies like Apple, Google, and Meta are being selective in what they reveal in advance—the stakes are too high to show one’s cards early and lose any competitive advantages.

Meta almost certainly has a well-defined road map that is not visible to outsiders, and it is not possible to put this road map together from public information. But if Meta can navigate these waters successfully, the company could have a strong position in the long term. This is where some additional details from Meta (for example, regarding smart glasses) could better address these issues.

Such concerns about Meta are not as simple as we would like them to be. This is what makes individuals like Zuckerberg a visionary. This insight is not an attempt to defend or criticize Meta, but we should give Meta the benefit of the doubt. We can end with another quote: “The people who are crazy enough to think they can change the world are the ones who do.” Sounds like the first quote, but this one comes from Steve Jobs.