Zuckerberg’s Race Through the Metaverse Takes a Pause

In early September, Mark Zuckerberg rushed into a Meta lab in Pittsburgh, Pennsylvania, sat down in front of more than a hundred high-resolution cameras, and prepared to prove his metaverse critics wrong.

The photo shoot was designed to generate a more realistic avatar of Meta’s chief executive, as the social media giant struggled to demonstrate that its $10 billion (R$51.9 billion) a year bet on a world futuristic 3D digital space known as the metaverse was not a failure.

In previous weeks, the Facebook founder had faced public mockery after a cartoon-like avatar of him went viral for all the wrong reasons.

That rudimentary image was widely derided as “timid” and “soulless,” building pressure on Zuckerberg to prove he was right to stake his company’s future on a vision of the metaverse that had already amassed more than $27 billion. 140.2 billion) in operating losses over the past three years.

But the selfie episode is just a stumbling block for Zuckerberg, who believes the metaverse is the next natural evolution in online socializing and is expected to reveal the new avatar next week.

According to memos and conversations with ten current and former employees, its 3 billion user social media empire is experiencing disruptions and challenges as part of the Goal Turn, and has already been forced to delay future launches and adjust expectations.

In a September memo seen by the Financial Times, Vishal Shah, vice president of Meta’s metaverse arm, warned that users and creators alike complained that Horizon Worlds — its social virtual reality experience and the closest thing to a metaverse yet — was low quality and full of defects.

He ordered a “quality lock” for the rest of the year, telling employees they need to improve fundamentals before any aggressive expansion. Employees working on the product had to “reprioritize or delay some things we had planned,” Shah said, adding that he was lowering his target number of users for the second half of the year.

Some employees warned that morale was suffering as teams were restructured to accommodate Zuckerberg’s new vision, which many have not yet embraced. “There are a lot of people internally who have never put on a headset [de realidade virtual]”, said a metaverse employee.

Meta said in a statement that the company is “confident that the metaverse is the future of computing and that it must be built around people.” She added, “Of course, we’re always making quality improvements and acting on feedback from our community of creators. This is a multi-year journey, and we’ll continue to improve what we’ve built.”

in the metaverse

It’s been almost a year since Zuckerberg announced his move to Meta. His plan was to attract 1 billion users and “hundreds of billions of dollars in digital commerce a day,” a move that would take between five and 10 years, he said.

Zuckerberg declared that from now on “we will be metaverse first, not Facebook first,” relegating the social network he founded in 2004 – and generates the vastly larger portion of his $118 billion annual revenue. 8 billion)– to a secondary position. Reality Labs, the division dedicated to the metaverse, would see a doubling of its workforce to 20,000 engineers.

Meta currently has more than 83,000 employees, after expanding rapidly during the pandemic and attracting augmented and virtual reality engineering talent from rivals Microsoft and Apple as it looks to bolster its metaverse team.

The impetus for the new bet comes when the group’s market valuation plummeted from US$ 1 trillion (R$ 5.1 trillion) to less than US$ 400 billion (R$ 2 trillion) in the last 14 months. The company faces several headwinds: a drop in digital advertising revenue, slowing user growth on its Facebook platform and increased competition from Chinese rival TikTok.

Zuckerberg announced at the beginning of the month a hiring freeze in most teams, a drastic cut in the workforce, equivalent to about 13% of the staff, and a belt tightening in 2023, due to the difficult macroeconomic scenario. Employees were also told by Zuckerberg to work with “greater intensity” and “a sense of urgency,” according to a July memo.

Analysts and employees say the next few years will determine whether the metaverse shift will be the answer to these problems — new revenue streams to capture the next generation of internet users or a giant distraction sucking up resources and limiting the company’s ability to revive its product. and rebuild your advertising infrastructure.

“The challenge is that they’re so focused on the metaverse that they’re not investing in their core product, which is Facebook and Instagram. All of that is a sideshow to the real issue, which is that Meta continues to be outperformed by TikTok,” said Rich Greenfield, an analyst at LightShed Partners.

He added that Meta’s level of investment in the metaverse is “concerning” for investors. “The metaverse as Meta envisions it is not investable today. Nobody is buying Meta for the metaverse.”

big investments

Since the beginning of 2019, more than $27 billion (R$140.2 billion) has been reported in operating losses for Reality Labs, Meta’s metaverse and virtual reality division.

According to people familiar with the situation, investments were largely focused on the development of hardware, such as headsets. [equipamentos de cabeça com óculos e fones] virtual and augmented reality platforms that can be used to log into the metaverse, along with software for your 3D world and the underlying infrastructure needed to support the system.

In addition to the avatars that will represent users in the metaverse, the company has been working on activities beyond simple social communication to give them something to do, such as working out in virtual fitness programs, games and places to study.

In its latest results in July, the company said it had $24 billion in non-cancellable contractual commitments “primarily related to our investments in servers, network infrastructure and consumer hardware products at Reality Labs.”

Meanwhile, the division’s revenues, which come largely from sales of VR (virtual reality) headsets, remain meager, in part due to the fact that the entire VR industry has developed more slowly than anticipated. In the second quarter, Reality Labs accounted for $452 million of $28 billion in total revenue, and the company warned that it expects Reality Labs revenue in the coming quarter to be even lower.

“It’s a big gamble,” said an advertising executive. “If you get the timeline wrong [cedo demais] In ten years, the company is really in danger, due to the intensive use of capital.”

The recent restructuring and abandonment of several projects to prioritize the metaverse has taken a toll on morale, according to several current and former employees, with some reporting an unhealthy divide between the metaverse-focused team and those in the traditional part of the business.

Devon Copley, chief executive of Avatour, the virtual meeting company, said Meta is “leading the industry” when it comes to developing the hardware.

However, he warned that the company was more challenged in developing software for the metaverse.

“The problem is the fragmented nature of the different teams and software product initiatives within the Meta organization,” he said, citing the constant reorganizations, “frequent changes in direction” and the lack of a “cohesive vision” of a social network that incorporate virtual and augmented reality.

The company is already having a hard time impressing creators building social experiences in the metaverse. According to a Meta memo shared by one person on their Facebook profile, creators complained at a roundtable last month that Horizon Worlds is “unstable and unreliable” and that the Meta team doesn’t update them when they report bugs, or before releases.

Employees “don’t communicate well, or maybe they’re understaffed, and things are falling through the cracks,” said one metaverse employee.

In Shah’s memo, which was first reported by The Verge, the Meta executive said the Horizon Worlds team had intentionally moved to “deliver faster” but that this had led employees to “trade quality for speed “.

The bugs and stability issues were so bad, Shah noted, that Meta employees themselves weren’t using the product.

He added, “The simple truth is, if we don’t love it, how can we expect our users to love it?”

Translated by Luiz Roberto M. Gonçalves