When changing it’s name to Meta Platforms (META) in 2021, Facebook was confident to gain significant market share in the metaverse and launched its Reality Labs division which focused the company’s vision of the metaverse on pricy VR goggles that provided half-body avatars and underwhelming immersive experiences cutting users off from their actual reality. Unsurprisingly Meta Connect attracted extensive mockery as it was never the point of the metaverse to confine users into straitjacket-like gear.
In spite of its 3 billion monthly users on Facebook, Meta has only sold 20 million VR goggles since 2019, and cannot account for more than 200 000 Reality Lab users. Most don’t return after logging in the first time.
In 2022, Meta Platforms lost $13.7 billion on Reality Labs and $4 billion in the first quarter of 2023. Meta continues to insist that the expense is worth it as it is helping the company create the next computing paradigm and giving it an opportunity to define the future of technology. Many investors however are calling on Meta to end it’s bet on the metaverse and flush Reality Labs altogether. In response to investors and to make matters even worse, Meta executives have revealed the losses are only going to get worse. Meta CFO, Susan Li, stated:
“For Reality Labs, we expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts in augmented reality/virtual reality and investments to further scale our ecosystem”
Headset obsession is a questionable strategy for Meta
In the PC and mobile tech model, devices and operating systems were the central point of value creation in the market. Specifically, with PCs, it was the Microsoft Windows operating system and Intel chip. The network effects they created among hardware suppliers and end users drove the industry and led to Microsoft and Intel’s dominance. The more Windows PC users there were, the more developers it attracted, which led to more users, and so on.
Later, Apple became the clear winner in the mobile era because it had the operating system developers needed to build on and the device users wanted. A combination of applications and the “cool” factor made Apple devices desirable, while the App Store made it easy for developers to deliver their software to customers. In both PCs and mobile, the device and operating system mattered a lot to the companies building hardware and software products.
The metaverse, or Web 3.0, was supposed to transcend devices and expand interoperability so that any existing devices would have an access point to the virtual spaces known as the metaverse, be it through onscreen augmented experiences, projected 3D holograms, or headset-goggles (if you can stand them). Nobody sees or cares what device you are using when you show up at a metaverse event. Meta didn’t get that and thought that its headsets would be the next iPhone.
Users and developers are confused
Many users and developers have struggled with what exactly the metaverse is and what its practical use would be. VR headsets have existed for over two decades, and the best experiences are still slicing blocks to the beat of music (Beat Saber – featured image) or a job-simulating experience for kids (Job Simulator). Applications are key to any technology platform, and the biggest challenge for the metaverse is that developers don’t know what to build.
Part of the problem is that Meta has stiffled VR and AR development. Its platform is too restrictive for developers and users. Meanwhile, the company is buying up the biggest studios and crowding out small developers. There’s little experimentation the way there was in the early days of PCs and mobile when venture capitalists couldn’t invest enough in the applications of the future. Meta’s tight grip on devices, the operating system, and application software makes experimentation nearly impossible.
In the nascent phase of a new market, it’s critical to test a lot of products to find product market fit. When the right fit is found for hardware and software, it can then be optimized and grow organically. Often that leads to a small group of winners, where Meta hopes to be. Instead, Meta monopolized the VR, AR, and metaverse space, to discourage testing outside of Meta. This turned away key innovators, developers, and entrepreneurs and sort of killed the metaverse in its making.
The metaverse is officially one of the biggest disappointments of 2022, and it wasn’t for lack of money invested or talent engaged in building. Business models matter. We don’t know what the best metaverse business model is because Meta limited the space to test new concepts.
There seems to be a consensus that Meta’s strategy of trying to own the metaverse may have put the movement five to 20 years behind. We are yet to see an upgrade from Second City.