Social media company Facebook has made a lot of news as of late following its rebranding as “Meta” and its desire to create a metaverse. The metaverse, as Facebook describes it, is “A set of virtual spaces where you can create and explore with other people who aren’t in the same physical space as you. You’ll be able to hang out with friends, work, play, learn, shop, create and more. It’s not necessarily about spending more time online — it’s about making the time you do spend online more meaningful.”
In other words, Facebook sees the metaverse as a place where people can meet up whether they’re in the same place or not.
“The next (technology) platform will be even more immersive — an embodied Internet where you’re in the experience, not just looking at it,” Facebook CEO Mark Zuckerberg said in his latest founder’s letter. “We call this the metaverse, and it will touch every product we build. The defining quality of the metaverse will be a feeling of presence — like you are right there with another person or in another place. Feeling truly present with another person is the ultimate dream of social technology. That is why we are focused on building this.”
Facebook is currently selling the metaverse as a way for people to connect better. Zuckerberg even noted that he wrote his original founder’s letter that Facebook doesn’t “build services to make money; we make money to build better services. While noble, the social media giant is still a business; the metaverse might connect its users, which is still up for debate, but it’s likely Facebook wouldn’t be investing so much time and money into this venture if it didn’t benefit the company in some way.
So, what is it about the metaverse that has a company like Facebook so intrigued? What is the company’s end game with all of this? Keep reading to see what the social media company is looking to accomplish with new technological phenomenon.
What can people do in the Facebook metaverse?
The way Facebook describes it, a better question might be what can’t people do in its metaverse? With the help of a pair of virtual googles, parents can share home videos with their family members from across the country as if they were sitting in the living room together. At work, colleagues can be in different office locations, but sit in the same conference room. From an entertainment perspective, two people could sit on their couch and attend a concert with thousands of other screaming fans.
“You’re going to really feel like you’re there with other people,” Zuckerberg said. “You’ll see their facial expressions or body language. You will be able to teleport instantly as a hologram to be at the office without a commute, at a concert with friends, or in your parents’ living room to catch up.”
Users will be able to participate in the metaverse via an avatar they create. Zuckerberg projects that these avatars will be as common as people’s social media profile pictures, CBS News reports. “Instead of a static image, there will be living, 3-D representations of you.” Additionally, users can dress their avatars in different outfits to reflect the situation in which they’re taking part. Creators from various apps will design the clothes that users select.
What’s Facebook’s goal with the metaverse?
So far, connecting people appears as to be Facebook’s primary goal with its metaverse. Zuckerberg noted that “feeling truly present with another person is the ultimate dream of social technology,” and that’s why Facebook is so focused on building this platform.
“You’ll move across these experiences on different devices — augmented reality glasses to stay present in the physical world, virtual reality to be fully immersed, and phones and computers to jump in from existing platforms,” he said. “This isn’t about spending more time on screens; it’s about making the time we already spend better.”
It’s great that Facebook wants to bring people together, but it’s impossible to ignore the financial motivation of this venture. For starters, the company is sparing no expense when it comes to getting its metaverse off of the ground. The company’s Reality Labs unit’s work on this is already expected to reduce its overall operating profit by approximately $10 billion, The Wall Street Journal reports. That figure seems to be alright for the company, as Zuckerberg expects the company’s metaverse investment to expand during the next several years.
While the company’s total expenses could reach $97 billion by the end of 2021, Facebook is looking at the big picture—a strong foothold in the online marketplace and generating revenue from daily metaverse visitors who want to purchase digital clothing, experiences and tools.
“Our goal is to help the members reach a billion people and hundreds of billions of dollars of digital commerce,” Zuckerberg said.
Facebook’s approach to generating hundreds of billions of digital commerce is to make its services be accessible to as many people as it can. The company’s mobile apps are currently free, its ad model is designed so businesses pay the lowest possible price and its commerce tools are moderately priced, according to Zuckerberg.
“As a result, billions of people love our services and hundreds of millions of businesses rely on our tools,” the Chief Executive said.
Now, the company wants to use the same approach to build its metaverse. Facebook plans to sell its devices at cost or subsidize them so more people can access them. Additionally, the company will continue to support side-loading and streaming PCs to give people options rather than make them uses Facebook’s Quest Store to find apps or reach customers. The company will also look to offer developer and creator services with low fees in as many cases as possible to maximize the overall creative economy.
Circling back to financial motivation, Zuckerberg acknowledged, “We’ll need to make sure we don’t lose too much money along the way though.”
Will Facebook own the metaverse?
While generating revenue and connecting people are Facebook’s goals for creating the metaverse, it says it’s not looking to control this virtual environment. The company acknowledged that one company won’t create the metaverse. Instead, “It will be built by creators and developers making new experiences and digital items that are interoperable and unlock a massively larger creative economy than the one constrained by today’s platforms and their policies.
What Facebook says it wants to do is accelerate the fundamental technologies’ development, as well as the social platforms and creative tools that can bring the metaverse to live. The company also has its sights set on weaving these technologies through their social media apps.
“We believe the metaverse can enable better social experiences than anything that exists today, and we will dedicate our energy to helping achieve its potential,” Zuckerberg said.
How much money will Facebook make with the metaverse?
The amount of money Facebook has spent developing its metaverse can be measured. It is too early to tell what kind of return on its investment the social media company will get though. While its hope is the metaverse will host “hundreds of billions of dollars of digital commerce, earning potential is really anyone’s guess right now. Dollars spent on virtual goods within video game platforms is a potential indicator, however. Jeffries analyst Andrew Uerkwitz recently told The Wall Street Journal that people have spent more than $80 billion a year on virtual goods. That figure could bode well for metaverse revenue in the future.
Facebook might have to show more than earnings potential to get Wall Street on board with its metaverse spending however, CBS News reports. Company shares hit a five-month low last week, the same day Zuckerberg outlined Facebook’s metaverse plans.
“It will take years to come to fruition while coming at steep price,” CFRA analyst Angelo Zino told investors in a report.
Meanwhile, Investment bank Raymond James dropped its price target on the company’s stock but maintained a “buy” rating. Bank of America analysts forecast that Facebook might have to spend as much as $50 billion into virtual reality, augmented reality and other tech for the metaverse before it can break even. Bank of America warned that the metaverse venture poses “a risk of capital destruction” and that the company could lose focus on its core businesses like Instagram and the Facebook social media platform.
For now, the consensus seems to be that investors might have to wait years before seeing a return their investment as Facebook makes this big, expensive pivot. Trouble is, there is no guarantee of a financial payoff at the end of all of this.
If successful, how will Facebook earn money from the metaverse?
Along with the virtual clothing, digital avatars, etc. that Zuckerberg mentioned, potential revenue-generating services the metaverse can create include the following, according to financial service content company Seeking Alpha:
• E-commerce revenues—Facebook could potentially act as a gatekeeper to all of the digital commerce transactions that take place within the metaverse. The company could charge between a 5% and 30% fee for such transactions.
• Social platform—The company could charge users a direct, monthly fee for metaverse access. It could also sell ads in this space.
• Content studios—Facebook could charge users recurring SaaS (software as a service) fees to create content in the metaverse.
“If FB can successfully ‘build the foundational platform for the metaverse,’ they would displace Adobe and other ‘creator’ economy companies in this specific arena,” Seeking Alpha wrote.
While these are promising revenue generators, they don’t come without challenges.
“By the CEO’s own admission, Facebook is unable to build the Metaverse on their own (unless he is now recanting, in which case this will call his credibility and managerial skillsets into question),” Seeking Alpha wrote. “Facebook will require massive cross-collaboration with many companies. Therefore, FB is by no means guaranteed to be able to dictate terms regarding monetization within the Metaverse – it’s like an HTML standard or the type of cords used.”
Meanwhile, there’s also the potential for setbacks—no tech venture is foolproof. So, if Facebook faces any challenges with its launch, it will require even more money to get back on track. Given how much has been put in so far, an executional challenge decreases the metaverse’s potential profitability.
Finally, there’s the issue of timing. Facebook is in the midst of branding issues (hence the recent name change), leaving many to wonder if this is the time to enter such a challenging pivot. Between its regulatory scrutiny, negative press it’s hard to imagine a worse time to enter such a pricy venture.
“The company is doing this at possibly the worst time—launching and announcing the plan to be the ‘new Internet’ while shunning accountability and lacking (apparently) and solid PR plan to deal with ongoing regulatory, brand, and media challenges,” Seeking Alpha said. “This makes management seem delusional at best, and downright reckless at worst.
“In the interim, the company is apparently flailing features for its core social platform offerings, thus diversifying efforts will only add to the operational challenges and executional risk for successfully implementing the Metaverse.”