But there’s a key difference for Zuckerberg’s company between today and a decade ago: While mobile technology was already a thriving platform when Facebook made this shift, the company’s vision of ” metaverse” – essentially an immersive virtual world where everyone can interact with friends. and strangers through digital avatars – is still years away, if it ever happens.
Hundreds of millions of smartphones were sold in 2012, the year Facebook went mobile. By contrast, only about 9.4 million VR headsets — which aren’t “the metaverse” but a stepping stone to getting there — shipped in 2021, according to technology market researcher IDC. (Meta’s Oculus headset is considered the most popular in this market, accounting for the majority of these shipments.) VR and AR technologies are also in their early stages of development (just look at all those legless avatars).
In the meantime, Meta’s activities are threatened on several fronts. Its user base is stagnant (and aging). Its core advertising business is challenged by operating system changes made by fellow tech giant Apple. And a series of scandals have put the company under the microscope of regulators, limiting its ability to buy its way to continued growth through acquisitions (although it has gobbled up a number of smaller companies for its push into the metaverse).
An undefined path to the metaverse
As these issues pile up in the real world, Zuckerberg is betting he can pull off another big transition into the virtual world. But even he admits some uncertainty ahead.
Regarding the company’s move to the metaverse, Zuckerberg said on this week’s earnings call that “while the direction is clear, our path forward is not perfectly defined.”
It is perhaps to say it charitably. Not only is the path not perfectly defined, but it is strewn with obstacles and extremely expensive. Meta’s AR and VR unit lost more than $10 billion last year, according to the company’s earnings report this week.
“Meta sacrifices its core business model for its fascination with the metaverse,” said Rachel Jones, analyst at GlobalData, a data analytics firm. “Betting big on the metaverse isn’t a bad thing – the technology should be huge and provide a wealth of opportunity – but it will take at least another decade to really kick off.”
In fact, despite its splashy rebrand bringing attention to the space last year, some of Meta’s competitors seem better positioned to lead the transition to the Metaverse, according to Angelo Zino, senior equity analyst at CFRA Research.
It points to rivals with more popular existing hardware products (Apple) or software products (Roblox) or just younger user bases that might be more likely to embrace the metaverse (TikTok and Snap). Facebook, on the other hand, is often seen these days as the place to stay in touch with older parents, who seem less likely to be early adopters of VR and AR technologies.
“You look towards [Meta] today and, yes, they have almost all the money in the world to spend on it,” Zino said. “But at the same time, there are many, many other players trying to do the same thing as Meta. trying to do… and I would say there are a lot of players who are way ahead.”
Real-world editing issues
Changes in Apple’s iOS 14.5 update have shaken Meta’s mighty ad business, making it harder to track users across the internet for ad targeting and to track the success of ad campaigns. The company expects to take a $10 billion hit from the changes in 2022, chief financial officer Dave Wehner said this week.
A perhaps more damaging long-term trend, if it continues, is that Facebook failed to gain new users last quarter. The company pointed to stiff competition for user time, including from rival apps like TikTok that are more popular with younger users. And with nearly 3 billion people already on the platform, Facebook faces the challenge of simply running out of humans it can convert into users.
The stagnant user base is “definitely a threat,” Zino said. “Once you get monthly active users like this to a screeching halt, it becomes noticeable to advertisers.”
Meta’s rough forecast for the current period – it projects revenue growth of between 3% and 11% in the first three months of 2022, compared to 48% growth in the first quarter of 2021 – could be a sign that it “loses wallet share within the ad space,” Zino said. (Meta’s ad business still accounts for more than 99.5% of its total revenue.)
The company told investors this week that it was betting big on Instagram Reels, its version of TikTok’s short-form video product, as a revenue stream. But Meta executives said the format has proven harder to monetize than other products. That may continue to be the case as Meta tries to sell it to its user base, which experts say is older than users watching and interacting with similar short videos on TikTok and Snapchat.
All this presents many challenges for the company at once. “We were struck by the breadth of priorities the business juggles (seven?) simultaneously,” UBS analysts Lloyd Walmsley, Chris Kuntarich and Mary McKennon wrote in a note. to customers on Thursday. And analysts noted that most of them aren’t expected to “lead to a near-term improvement” in the company’s revenue.
In other words: Facebook has hit a wall and there is no easy way to get past it.