When Facebook changed its name to Meta (META), it made an all-in gamble before it had even been dealt a hand. The metaverse is a concept so new that even its definition is still up for debate. Some say it’s a virtual world where you can be anyone you want, and others say it’s a 3D internet where anything is possible.
Just over one year ago, Facebook rebranded to Meta. The new name was inspired by the metaverse, a concept popularized by science fiction novels such as Snow Crash and Ready Player One. Since the rebranding, Meta has been in a financial spiral, losing over $700 billion in market capitalization.
The believers think that the metaverse may eventually replace the physical world as our primary reality, while the skeptics say it’s nothing more than a pipe dream.
Regardless of what the metaverse will become, there is no denying that Facebook’s decision to rebrand as Meta was a bold move, but as of now, it seems as though Meta may be doomed.
The Struggling Meta
There is no denying the ambitions of Facebook Meta. It is, after all, the company that popularized social media and changed how we communicate. But its recent decision to rebrand as Meta and focus on the metaverse may have been a step too far.
In 2021, Meta was in an elite class, with its value reaching over $1 trillion. Currently, the tech giant’s market value is $268 billion, a 67% decrease from the year prior.
And things continue to get worse. On Meta’s latest earnings report, Meta revealed its overall net income is down 52% from the previous year, with more expenses to come. This led to another 24% decrease in Meta’s stock price, which saw it hit its lowest value in more than four years.
While CEO Mark Zuckerberg knew there would be massive upfront investments before seeing any return, he likely didn’t anticipate just how difficult it would be to get people to buy into the metaverse.
With losses of $9.4 billion in the first nine months of this year, Meta is projecting further losses in 2023. To make matters worse, Meta has lowered its targets from 500,000 monthly users in Horizon Worlds by the end of 2022 to 250,000. This has led investors to lose confidence in the company and question whether the metaverse is viable.
Understanding the Metaverse
Even if Meta were to fail its initiatives completely, that does not necessarily mean the end for the metaverse itself. To better understand this, let’s investigate what the metaverse is.
The simplest definition of the metaverse is a simulated reality where users can interact with each other in a virtual space. This could be anything from a basic chat room to a fully immersive 3D world. However, what the actual metaverse will look like and become is unknown to everyone, including Meta.
One of the leading players in the metaverse development is The Sandbox (SAND). Sandbox is one of the biggest web3 metaverse companies. While it has ambitious goals for the future, it envisions the metaverse as an interoperable network of virtual worlds where people can come together and interact with each other. It expects there to be countless metaverse experiences, all interconnected with each other.
The Sandbox’s U.S. Chief Executive, Mathieu Nouzareth, outlines the critical differences between Meta’s vision and Sandbox’s. Sandbox wants the metaverse to provide thousands of companies with the opportunity to build their universes, whereas Meta wants to control everything and be the only player in space.
Nouzareth outlines that Meta’s objectives go against the fundamental values that have built the blockchain and web3 communities: decentralization and giving power back to the people.
This may be one of the main reasons the web3 world has yet to jump on board with Zuckerberg’s plans. Decentralization is at the core of what the web3 community stands for, and Meta’s vision goes against that.
Is Meta Doomed?
While companies like IBM and Microsoft have shown in the past, sometimes it takes multiple tries to get it right, and they have also managed to weather billions in losses without too many issues. So, Meta may eventually find success with its metaverse initiatives, but as of now, it seems unlikely.
Let’s look at some fundamental issues with Meta’s current plans.
The Infancy of the Metaverse
The first issue is that the metaverse is still very much a concept and one that most people need help understanding. Is the intention of the metaverse to replace our current reality? Or is it simply an extension of it?
No one knows, and even if they did, would they want to live in a world where algorithms and corporations control everything?
Lack of Consumer Confidence in AI
The second issue is that the metaverse will be highly reliant on artificial intelligence (AI), and as we’ve seen with other tech giants like Amazon and Google, AI can be a double-edged sword.
On the one hand, AI can be used to create realistic avatars that can interact with other users in the metaverse, but on the other hand, it can also be used to surveil and control users. With the web3 community built on decentralization, having a company like Meta in control of the metaverse is a scary thought for many.
The third and most crucial issue is that the metaverse will require massive data to function correctly. As we’ve seen with the Cambridge Analytica scandal, trusting Zuckerberg’s Meta with user data is a risk many are unwilling to take.
The bottom line is that the metaverse is a gamble, and Meta has a history of violating privacy rights. The metaverse may never take off if users don’t feel safe sharing their data.
The $1 Trillion Gamble
To say it is the end of Meta is a little extreme since the company still holds a market valuation of nearly $270 billion. However, the company that once had a $1 trillion valuation is definitely in a tough spot, not least because expenses are way up, and balance sheet cash is way down.
With Meta openly saying that operating losses will grow significantly in 2023, there is little hope for the META stock in the short term. Making matters even worse for Zuckerberg’s latest initiative, the company’s primary income stream has been declining. Ad revenue powers the mega-corporation, and with tighter privacy restrictions set by Apple, that revenue will only continue to drop.
So the question investors are asking is whether this business model is sustainable. How long can Meta keep bleeding money before there is no way out?
The answer to that question is unclear, but what is certain is that Meta’s current strategy needs to yield success soon, or it will prove unsustainable. The company needs to find a way to generate revenue fast; otherwise, we may see the once high-flying company bleed to the verge of extinction.