There Is No Way Out Of Meta’s Metaverse Money Pit

On Thursday, Meta shocked the financial world by posting a 52% profit decline, its second straight quarterly decline, and a revenue decline of 4% year-over-year. This decimated their stock so badly with a 24.5% drop that it caused financial analyst Jim Cramer to break down crying and apologize on air for having faith in the company.

A main culprit of Meta’s decline is the thing it was named after, Mark Zuckerberg’s relentless pursuit of the metaverse through the company’s Reality Labs division, which has lost $9.4 billion this year so far, and there are warnings that bigger and broader losses are to come in 2023.

While there are many issues facing Meta, challenges from TikTok, Apple hampering its ad-targeting abilities, Zuckerberg’s metaverse pipe dream is the easiest thing to point to when we’re talking about the biggest threats to the overall survival of the company. And if you’re at all familiar with the metaverse, and Meta’s version of it, you can see how it’s going to be almost impossible for them to spend their way out of this hole by simply making it more immersive with better tech. They are quite literally throwing cash into a black hole with absolutely no coherent way to extract it.

There are only a few ways that this current iteration of the metaverse can bring in revenue for Meta.

Hardware sales

Admittedly, Meta did do pretty well with the Meta Quest 2, its low cost headset which racked up 15 million sales by last count. However, there are significant indications that it was likely either selling at a loss or very slim profit, judging by the fact that Meta had to raise prices of its different versions by $100 each, citing market conditions.

And in the grand scheme of things, 15 million is pretty low in the hardware space. If we’re comparing it to say, modern video game consoles, last generation is wrapping up with 117 million PS4 sales and 111 Nintendo Switch sales. And that’s in addition to the massive revenue they take in from their software. Meta has fractional sales compare to those totals, and while adoption of VR has grown, it is not grown past being a niche.

While there’s no hard data on this, I would suspect the use of those 15 million headsets compares very unfavorably to the overall use of 15 million random players who own PS4s or Switches. VR players are more likely to set down their headsets for extended periods of time, if not permanently, after purchase. And now, Meta just announced a pricey new headset that costs as much as every current video game console combined, with the cheaper Quest 3 not out until next year.

Enterprise Use

A huge part of Zuckerberg’s pitch has been trying to make the metaverse a place for virtual business, especially in this current work from home era. The problem, of course, is that it has yet to produce any meaningful proof that it’s better or more engaging than a simple Zoom meeting in most cases.

For starters, if your company wants to meet up in the metaverse, you have to spend money to give every employee you want there an actual VR headset, a luxury purchase by any definition of the term. Then you have to actually get people to use it, something that Meta itself cannot even convince its own employees to do, as leaked internal documents show that execs had to essentially mandate that teams spend time in the metaverse and host meetings there, because no one was doing it of their own volition.

So while sure, Zuckerberg can bring on Accenture and Microsoft to talk about the potential of business metaverse use, there’s a big gap between “you can meet up and do work in the metaverse” and anyone actually…wanting to do that.

Fun and Games

Meta Connect actually barely spent any time talking about actual video games, just rattling off a couple of games that have mad decent money through the Quest ecosystem. But again, unlike Nintendo or Sony, Meta is not directly producing any of its own video games for VR, relying on outside developers. And the things they are developing in-house are the different bits of the Horizon platform, where Horizon Worlds is meant to be the social network, for the entire metaverse. Essentially that is the metaverse part of Meta’s metaverse plans.

It’s also terrible.

Horizon Worlds is essentially a giant, VR chatroom where you can hang out with friends and play minigames, but often it’s just perusing virtual worlds with strangers, or no one at all, as many corners remain completely empty. Much fuss has been made about how bad the avatars look and how they don’t have any legs, and while part of the billions Reality Labs is spending is making those avatars look better and putting legs on them, that’s missing the overall point: for most people, this place is not fun, this is not somewhere you want to spend time in.

While Horizon Worlds does have some dedicated players, they are a niche of a niche. Of the 15 million Quest sales, Facebook reported 300,000 Horizon Worlds players last February. Now, that number has actually fallen by 100,000, down to 200,000, a wide miss from Meta’s goal of 500,000 by the end of this year.

The problem is in order for a place like Horizon Worlds to make any actual revenue is that Meta would have to start doing things like selling virtual products or virtual ad space there, cluttering up the already pretty ugly environment further. Everyone loves to reference Ready Player One when building the metaverse, but in that story, the villain was IOI, a company that wanted to extract as much money from the metaverse as possible by jamming ads onto the screen. But by that point, that story’s version of the metaverse was already the most popular thing on earth. Zuckerberg first needs about another 10-20 years of growth in this space and in the end, he’s still kind of just…the villain, looking to monetize the experience for shareholders.

At this point I’m convinced Zuckerberg could throw $20 billion a year at this and it would barely make a difference. Sure, VR use may continue to grow incrementally. Yes, shared virtual spaces are things that people like, but everyone is doing them better than Meta is here already, and no amount of emotion-tracking or legs will change that. This is the definition of a quixotic quest for Zuckerberg, and it may cost him his entire company if he doesn’t pull back from the brink some time very soon.

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Pick up my sci-fi novels the Herokiller series and The Earthborn Trilogy.