The Metaverse – Resource Allocation

More realignment and less cancellation

• Meta’s realignment of its Metaverse spending is a reflection of how the market has evolved as opposed to a wholesale abandonment of the Metaverse, and makes sense given the time scale and uncertainty that still exists.
• Meta Platforms is slowing its investments in virtual worlds and will funnel the savings into smart glasses and AI, which is a category where it has market traction.
• After a disappointing set of Q3 25 results, Mr Zuckerberg is once again feeling the pressure of investors voting with their feet, and is planning some cosmetic measures to reassure them that he is not about to bankrupt the company in pursuit of a dream.
• This means cuts at Reality Labs, which loses more than $3bn every quarter and is tasked with ensuring that when the Metaverse comes, Meta has the leading platform.
• To date, this has involved kick-starting the ecosystem through heavy subsidisation of Oculus Quest VR headsets, which has meant that Oculus dominates the tiny VR market that exists today.
• 3 years ago, this made sense as the common wisdom was that the Metaverse would begin in VR and then migrate to AR when the technology was good enough.
• However, this is not what has happened, as finally being able to use natural language as the man-machine interface has upended the market.
• Ever since ChatGPT demonstrated that machines could understand and converse using natural language, there has been scope for the user experience with smart glasses to improve radically.
• Meta was the first to produce a commercial product, which has proved to be so popular that it has announced a slew of follow-ups and even one with a small screen.
• Meta is not alone, and both Google and Samsung have a product with many others to follow, as Qualcomm, which supplies the chips for these products, is struggling to meet demand.
• Consequently, if the Metaverse is going to develop, it now looks like it will evolve from smart glasses and not VR, meaning that heavy investments in VR are no longer warranted.
• This is why Apple has redirected focus to a smart glasses-type product from the Vision Pro product line, and I suspect to see a flurry of smart glasses products at CES next month from China and elsewhere.
• Consequently, spending billions of dollars on subsidising the Oculus Quest and building a virtual reality world no longer makes sense, which is why I suspect that Mr Zuckerberg has decided to make these changes.
• The fact that his shareholders are getting grumpy with his presumed profligacy will have also had an impact.
• The net result is that I don’t see this as a retreat from the Metaverse but a realignment of resources reflecting how the outlook for the market has changed.
• Meta is still determined that in the next generation of consumer hardware that it will no longer be hostage to Apple and Google, and so from an ecosystem perspective, the fight for the Metaverse is still very much on.
• However, that fight is still some way off and is going to be preceded by a fight over which AI platform consumers and companies choose to spend their time with, which is what RFM Research refers to as AI Ecosystem 2.0 (see here).
• This is a fight that OpenAI must win, and Meta is currently lagging behind both OpenAI and Google.
• This is where it needs to focus now and leave virtual worlds for another day.