As of 2022, Facebook, rebranded as Meta, is a profitable company, generating $23.2B (a massive slowdown compared to $39.37 in net profits in 2021). Yet, if we look at its Reality Labs segment, which is in charge of building the Metaverse, it recorded an operating loss of $13.7 billion for 2022, with revenues of just $2.16 billion, representing 1.9% of total revenues for Meta.
For all its life, Facebook has been a printing machine.
Yet, by 2022, as Facebook rebranded into Meta and tried to build a Metaverse relentlessly, it burned billions in the process.
By 2021, Reality Labs, Facebook’s segment tackling the Metaverse, had recorded over $10 billion in losses. And things are getting worse for 2022.
The attempt to build the Metaverse has changed the whole cost structure of Facebook, which moved from being a printing machine to burning billions.
A key note here, in 2021, Facebook (Meta) was still a printing machine, generating over $39 billion in profits.
Yet, in 2022, profits slew down substantially to $23.2B (a massive slowdown compared to $39.37 in net profits in 2021), primarily due to the incredible expenses Meta is carrying for the development of the Reality Labs segment.
Thus, Meta still has a lot of firepowers to throw at the Metaverse. Yet, if it wants to succeed, it must change its playbook, and in 2023, Meta will focus on making its business model much more efficient (which might also mean a lot of cust in the Reality Labs segment).
Just a little back than a year ago, on October 28, 2021, Facebook officially announced its rebranding into Meta!
As I’ve highlighted time and time again. At the same time, Zuckerberg did have a vision of VR as the upcoming business platform since 2014 (when it bought Oculus).
The rebranding of Facebook into Meta was a survival move
With Apple tightening its mobile pipeline with its iOS update (after the change, users need to explicitly opt-in to track instead of being opted-in by default – and most users don’t opt-in to tracking).
This created the foundation to kill the whole Facebook advertising machine. Facebook tries to cut costs, pressed by Wall Street, and it does that by sending home 11,000 employees. However…
This, to me, seems a facade, as the company isn’t planning to cut capital expenditures for the Metaverse, quite the opposite!
In the latest financial releases, Meta projected over $39 billion in capital expenditures by 2023, most of which might be attributable to the expenses to build the Metaverse!
What’s the key issue here?
I understand that building the Metaverse is not simple and requires a massive amount of resources.
However, it seems that Zuckerberg is falling into the “Bill Gates’ Superhighway trap!”
In other words, instead of building the Metaverse with a bottom-up approach by enabling users’ adoption, Meta is implementing the top-down vision that Zuckerberg has about the Metaverse.
This, to me, seems like the colossal mistake Bill Gates made in the 1990s with the Information Superhighway…
What happened there?
Back in the mid-90s, when the commercial Internet was finally taking over, most luminaries, gurus, and tech experts projected it as a sort of Information Superhighway.
The vision was about an “interactive entertainment center” (think of it as TV online).
While by 1995, Microsoft had tried to rewrite business history, as if Bill Gates and his company had fully grasped the Internet phenomenon. In reality, things looked quite different!
As explained by Jim Clark (co-founder of Netscape) in his book “Netscape Time: The Making of the Billion-Dollar Start-Up That Took on Microsoft,” in 1994, Netscape was launching the browser which would conquer the whole browser market share, thus, becoming, for a short period, the Internet!
In the same year, Microsoft was still trying to figure things out.
Only in late 1995, a few Internet years later (since one year in the real world seemed like seven years in the Internet early stage) did Microsoft understand that the commercial killer application was the Browser (Microsoft bought the code of Mosaic and built a first, scrappy version, of Internet Explorer).
Microsoft, a native player of the PC era, had risen during the 1970s when Intel had created a whole new industry. Thanks to Intel’s family of chips, with the development of the 8080 – led by Federico Faggin – going forward, the computer industry was born.
The turning point for Microsoft came when IBM, in1980, was about to launch its IBM Personal Computer. The IBM Personal Computer, contrary to what IBM had done in its whole history, followed an open architecture.
In 1980, Microsoft partnered up with IBM to bundle Microsoft’s operating system with IBM computers. The deal was straightforward, IBM would pay Microsoft $430,000 for what would be called MS-DOS.
Microsoft, on the other hand, could license that same operating system to other PC makers beyond IBM. The microcomputer space, which in the late 1970s was dominated by Tandy, Commodore, and Apple, was taken by surprise as the IBM Personal Computer became a huge success.
Yet, by the early 1990s, IBM had lost its leadership and didn’t manage to capture the value of the PC market. Microsoft, instead, built a software platform that would give it a competitive distribution for decades!
And yet, when the Internet came about, Microsoft managed to keep up, thanks to its massive investments and distribution strength.
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