Virtual reality meets tough reality

In a video streamed during an online press conference last year, Facebook chief Mark Zuckerburg revealed his big ambitions for the Metasphere – a digital world accessed through virtual reality headsets that hopes to reach a billion people within the next decade. 

One year on, Meta’s vision for an internet built around decentralized technologies remains very much in infancy stages and a far cry from expectations set out in 2021. The company is struggling to appease investors, following a poor showing in its latest earnings report that triggered a decline of over 20% in its stock price on Thursday. 

Low return on investments 

Meta began reporting separate earnings for its virtual reality and metaverse segment, called Reality Labs, in the final three months of 2021. 

Reality Lab’s total revenue for October-December rose by 36% in the quarter to US$877 million. However, the quarterly earnings report wrapped up a year in which the company invested US$10 billion in its metaverse-related activities – an investment that has yet to pay off. 

On Monday, Meta Platforms Inc. shareholder Altimeter Capital chair and CEO Brad Gerstner wrote an open letter to Zuckerberg, saying that Meta needs to “get fit and focused,” and suggested reducing headcount and metaverse investments.

Meta’s stock has fallen by about 70% from US$336 at the start of the year to around US$98 in after-hours trading on Thursday.

Lofty expectations 

In last year’s announcement of Meta, Zuckerburg stated his belief that the metaverse, full of customizable avatars and digital spaces, would be the successor of the mobile internet. 

Off the back of worldwide social distancing measures caused by the Covid pandemic, the promise of a platform that would allow friends to meet and attend virtual events had garnered much attention.  

Wall Street players like Goldman Sachs, Morgan Stanley and Citigroup all forecasted that the metaverse will exceed US$8 trillion in market cap by 2030. Over US$120 billion has been invested in the metaverse sector since 2021, according to McKinsey. 

What happened

Financial hype and speculation about what the metaverse could be, have not boosted adoption. 

Meta’s flagship metaverse platform, Horizon Worlds, is struggling to attract new users. The company aimed to gain 500,000 monthly active users on the platform by the end of this year but numbers remain below 200,000, according to the company.

The metaverse’s lack of user traction extends to even its own employees. In a leaked memo obtained by The Verge this month, Vice President Vishal Shah chided employees for how little they used Horizon Worlds for work and leisure. 

In a May poll of 1,000 Meta employees on the anonymous professional social network Blind, just 58% of employees said they understood the company’s metaverse strategy, according to a New York Times report. 

Among critics, one of the main shortcomings of Meta’s platforms is the graphics within its virtual reality-centered apps. When Meta announced the launch of its metaverse platform Horizon Worlds in France and Spain in August, it was greeted with a wave of criticism and negative press. 

Viral memes of CEO Mark Zuckerberg’s legless Horizon World avatar flooded the internet, prompting a redesign and assurance from the company of better graphics. 

During a Wall Street Journal event on Wednesday, Microsoft gaming chief Phil Spencer and Snap CEO Evan Spiegel echoed similar criticisms. Spencer compared the metaverse’s iteration to a poorly built videogame, citing its low-quality graphics and interface.

Next steps

According to Meta, losses are expected to continue to “grow significantly” heading into next year. But Zuckerberg remains steadfast in the face of criticism and financial losses.   

Meta is expected to continue to raise metaverse spending, with the company projecting overall operating expenses to grow some 14% in 2023. Meta also reported that it added 3,761 employees in the third quarter, despite talk of an upcoming wave of layoffs. 

In the leaked Meta internal memo, Meta’s vice president wrote: “the aggregate weight of papercuts, stability issues, and bugs is making it too hard for our community to experience the magic of Horizon.” 

Shah reportedly told employees they would remain in a “quality lockdown” for the rest of the year to address quality gaps and performance issues before opening Horizon to more users. “For an experience to become delightful and retentive, it must first be usable and well crafted,” he added.