Meta Betting the Company on Success or Failure of Metaverse

Andrej Karpathy was interviewed by Lex Fridman and one of his many key points was that Teslabot is not setup for zero or one loss function. Andrej means that the business model is not set up where a lot of money is invested and it does not take complete capabilities for Teslabot to be a financial success.

This was the case with autopilot and full self driving software. Full self driving is still in beta but the Tesla self driving program is already profitable. Tesla has sold over $5 billion of full self-driving software. Tesla defers the accounting recognition of 50% of full self driving software sales. Tesla has about $2.8 billion of deferred revenue. This means that Tesla could have in the range of $5 billion of full self driving sales. There is also deferred revenue from Cybertruck and Semi deposits.

Tesla also has many billions in autopilot sales and sells the cars including the cameras and hardware for autopilot and self driving for an overall gross profit of 30%.

This is something that Elon Musk has down with SpaceX as well. The reusable boosters were tested as part of profitable satellite launch missions. The boosters would normally be destroyed but SpaceX tried to land them after they had successfully completed profitable missions.

Waymo and Cruise are competing in self driving and Waymo started before Tesla on self driving. Waymo makes a few million dollars on self driving ride sales.

In mid 2022, Cruise has $3.7 billion in cash at the moment and a $5 billion credit facility from GM’s financial arm for buying automated Cruise Origin EVs from the automaker. Cruise has quarterly losses of $500 million.

Aurora Innovation, a startup co-founded by Chris Urmson, Google’s former autonomous-vehicle chief, has lost more than 85% since last year and is now worth less than $3 billion.

Ford funded Argo AI and Ford had to write off $2.7 billion when Argo failed.

Meta is not getting to rapid profitability with partial Metaverse capabilities. Meta (Facebook) is betting the company on the success or failure of the Metaverse. Meta has spent $9 billion in the first 9 months of 2022 on research and development of the Metaverse. Meta has also increased property and equipment spending by over $9 billion just in the last 3 months and they used almost $10 billion of debt for this purpose.

Reality Labs is where Meta is researching the Metaverse. They have reported that they will increase operating losses to reach long term profits from the Metaverse.

At Connect 2022 this month, Meta announced the Quest content store has surpassed $1.5 billion in purchased VR content since its launch in 2019, representing continued but decelerating growth likely due mostly to market seasonality.

In Mid-2022, Meta’s Quest 2 headset eclipsed 14.8 million units sold mark according to new data provided by the International Data Corporation. there are some hardware sales but almost no content sales. Metaverse will be profitable only with massive amounts of content sales relative to hardware.

Overall spending on video games (in general not just VR) in September decreased four percent year-over-year from $4.26 billion to $4.07 billion. Spending on video game content dropped seven percent from $3.68 billion to $3.41 billion, while video game hardware sales increased 19 percent percent from $410 million to $490 million.

Sony, Nintendo and Microsoft have video game and content sales that are several time more than hardware sales. Meta has hardware sales for their VR headsets but almost no software and content sales.

Nintendo is a US$52 billion company. Facebook could by buying Nintendo instead of making the Metaverse investment. Sony has a market cap of about US$85 billion. Nintendo makes about $8 billion per year in profit. Sony makes about $11 billion per year in profit.

Tencent owns Supercell which makes Clash of Clans. Tencent is the leader in video game revenue. Tencent is the world’s largest video games publisher. They makes with League of Legends and PUBG Underground. Tencent also has enterprise IT services including cloud computing and AI, as well as financial services. Tencent’s metaverse strategy to focus first on games, but then expand into other fields.

Apple will soon be introducing a VR headset.

VR seems to be extending existing competition in video games and video conferencing. This is like IMAX and 3D movies were extensions of regular movies.

All of Meta’s spending does not guarantee that they will be the long-term winner in VR headsets or VR games.

Meta and Zuckerberg should have spent the time to figure out a profitable path to competing and developing their version of the Metaverse. They could have gotten stronger in video games by buying profitable video game companies. Zuckerberg thinks they can win in the 3D version of video games and conference calling when they are lower than tenth place in the 2D versions. You are not playing any video games from Meta or doing any conference calling with their non-VR tools. Meta is weak in all of the non-VR versions of things they expect to win when they go VR (Virtual reality). Meta thinks just spending a lot of money for this hail Mary bet on VR will win. Tens of billions of dollars spent now and the next few years will magically payoff when VR becomes huge in X years. When VR becomes huge Meta thinks they will win and not companies who are leaders in video games now.

Musk figured out profitable paths for reusable rockets, self-driving cars and has a rapidly profitable path for humanoid robots.

15 thoughts on “Meta Betting the Company on Success or Failure of Metaverse”

  1. Seen this before many times. Lots of excitement and possibilities seen but all are blinded by too much optimism in having too many future technological achievements being able to come together at just the right times in the future to pull off a comprehensive, sophisticated and intricate solution(s) that the masses will be climbing over each other to get. Way too many successes to happen and integrate successfully between themselves for a company like Meta to handle.

  2. I can recommend reading a book “Stealing worlds” by Karl Schroeder, that shows the potential of the meta-verse.
    The glasses they have are the size of normal reading glasses, – and thus overcame the main hurdle for this to work: Glasses you can wear all day, and that don’t hide your face.

    I for one cant wait to throw out all my monitors and get my table back.
    Driving with these and you have no blind angles. (although nefarious hackers could also paint out pedestrians…)
    Magnify any label you look at.
    X-ray vision when repairing something, or see a ghostly 3D blueprint when building

    I just cant believe they have spent billions and still not reached that goal.

      • For the record I don’t want to touch Meta’s stock. FB is an “icky” company. But yes if success is contingent on people moving to their metaverse then they are really doomed, in particular in an economic environment where people are looking to cut back on useless expenditures like VR headsets.

        • Zuck surely misses the days of near complete lockdowns, when people had to stay at home , and the idea of everyone working on a facsimile office on bad VR still was on the table.

  3. The Metaverse has tremendous potential, and it could get very good, very quick. A lot of this depends on computer performance, graphics processing, etc., Etc. The low poly, stick figure -like characters people are reporting about can easily be modeled into more detailed characters, which can then be scaled throughout the Metaverse because every 3D model is already cached somewhere and doesn’t have to be remodeled every time it instances.

      • There’s also a vast difference between “brilliant technical quality of execution” and “content that is worth paying money for, regardless of the quality”.

        But I know that my predictions as to what consumers will actually like are probably worse than flipping a coin, so I won’t bet either way.

  4. The Metaverse is a bad idea. The general feeling is that people are alredy having exessive inerention in thei life from the new media. People will not want to live in a virtual zoom meeting locked out of the world. Too much radiation.

  5. Too bad, so sad.

    Zuck got too much into Ready Player One and drank his own kool-aid.

    The “metaverse”, or a platform for the free exchange of VR content has been attempted before (back in the 90s!) It was called VRML, and it was certainly more primitive, but already showed the shortcomings of VR: it is strongly performance bounded and therefore, requires strong optimization at the hardware, firmware and OS level. Something a generic jack-of-all-trades platform can’t give.

    And it shows: Meta’s metaverse boondoggle looks like something out of an early noughties videogame. A pricier Second Life of sorts.

    Nowadays we have much better VR headsets than back in the 90s, and the potential public is much bigger, but the technology still shows the same behavior of strong performance boundedness.

    • The problem is that even top notch VR hardware results in a lot of people getting motion sickness unless you go all out in making sure actual motion matches the graphics. Like they did in Ready Player One, with people standing on omnidirectional treadmills, wearing haptic suits.

      Just goggles? For a lot of people, they might as well come with a supply of barf bags.

      So the potential for something like Zuck envisions is only there with REALLY expensive hardware.

      He failed to attempt a minimum viable product, he’s trying to power through with massive spending to keep things going anyway until the maximal product becomes viable. He really would have been better off buying a good VR video game company, and funding their path to full haptics, so that he had the hardware for his vison.

      Personally, I hope his Metaverse fails, because it has some horrific dystopian implications in terms of over the top surveillance. And the record of social media companies says there’s no way they wouldn’t go down that road, at a dead run.

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