- Facebook had a tough ride this week with its outage and the whistleblower affair, but in this article, I want to focus on the long-term plans of the company.
- Mark Zuckerberg thinks that in five years, Facebook will be known as "a metaverse company".
- But their first step in this direction, Horizon Workrooms, looks more like a VR competitor of Zoom than anything else.
- Even more important, the very idea of the metaverse seems unlikely to rhyme with Facebook's most valuable asset: its social network.
- Investors in Facebook should take a good hard look at the diversification plans of the company.
Facebook (FB) has been in the news headlines quite a lot during the last couple of weeks. First, whistleblower Frances Haugen claimed that when there were conflicts of interest between Facebook and the public, the company time and time again chose to optimize for its own interests. Also, the afternoon-long outage which Facebook experienced last Monday was an unprecedented event, which logically leads to questions about the stability and the safety of its technology.
These events have not been positive for the company, but in this article, I want to focus on the long term. Though not that much in the news recently, the plans which Facebook has for their involvement in the metaverse are of utmost importance for the future of this social media company.
Plans for the metaverse
Mark Zuckerberg thinks the metaverse will be the next big thing. It was already clear that the company was aiming to invest in VR and the software technology of the future, but during an investors' call last July, he specifically took the time to explain Facebook's (FB) ambitions with regard to the metaverse:
In the coming years, I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company. In many ways, the metaverse is the ultimate expression of social technology. Think of the metaverse as an immersive virtual world where people can spend time together and hang out, much like you can do today with virtual reality, dialed up to 11. You’ll be able to “teleport" between different experiences.
Zuckerberg makes it very clear: Facebook has the ambition to become a metaverse company.
In fact, during the latest earnings call, he mentioned the term metaverse sixteen times, versus only once for the company's current lifeblood, advertising.
What is this metaverse?
The metaverse sounds like a very nerdy concept, and it might be. But it is an essential part in understanding the direction Facebook wants to go with their company. In this chapter, I will do my best to describe the metaverse concisely but without leaving out essential parts of information.
If you ever saw the movie Ready Player One, you already were provided a glimpse of how a part of the metaverse might look like. In this movie, in 2045, much of the earth's population uses OASIS, a virtual reality simulation to escape the real world. Protagonist Wade Watts searches for an easter egg in the OASIS so he could inherit the game creator's fortune.
In the movie the Matrix, a situation in which VR has completely taken over is shown. In this movie, a world is shown where humanity is held prisoner in a virtual reality, which has been created by robots and machines. This virtual reality, which looks pretty much like our normal world, has been designed to look like reality so these machines can use our bodies as a source of energy.
But enough about movies, the metaverse is going to be so much more than only virtual reality. Among its likely characteristics are that it will encompass a fully-fledged economy, be an experience that spans both the physical and the digital world, and offer interoperability (meaning that you can use avatars or other digital assets with different applications).
Currently, there already exist many applications which can and likely will be integrated into the metaverse eventually:
- Email and other ways to communicate digitally.
- Video games with their more and more immersive experiences.
- Sports trackers connecting physical activities and data to the virtual world.
- The 'internet of things', in which many machines in our homes and offices are connected to the internet (and in the future likely the metaverse), and send and receive information from it.
- Virtual currency.
The metaverse is best understood as a 'successor to the mobile internet'. Mobile internet was already a vastly different world from internet which could only be accessed using a fixed-line. Nowadays people can access the internet with the click of a button, from anywhere at any time. Even though most internet traffic is still transmitted through fixed infrastructure, we should recognize that the mobile internet is a large leap forward from fixed-line internet. The metaverse again takes this a step further. It will not replace the internet, but build upon and transform it.
In the metaverse, everyone will be placed inside an 'embodied' version of the internet, nearly permanently. We will constantly be within the internet rather than only being able to access it from time to time.
One of the best definitions I could find is the following:
The Metaverse is an expansive network of persistent, real-time rendered 3D worlds and simulations that support continuity of identity, objects, history, payments, and entitlements, and can be experienced synchronously by an effectively unlimited number of users, each with an individual sense of presence
What the metaverse is not:
- Virtual reality: Virtual reality can be a part of the metaverse or an important application of it, but not the whole experience.
- A user-generated virtual world: Same as the above, a user-generated virtual world (like Facebook) can be a part of the metaverse, but only a part of it.
- A video game: Of course, video games can be fully integrated in the metaverse, and many games currently look like they are some of the closest representations of the metaverse currently available (for instance Fortnite). But those games will be in the metaverse, they are not the metaverse itself.
As Matthew Ball on his website describes in great detail:
The metaverse is best defined as a network of interconnected experiences and applications, devices and products, tools and infrastructure.
As he continues to describe (original is from the same source but adapted a bit to focus on only the most important information):
The full metaverse is a distant future vision where different virtual worlds come together into a single integrated online world which is by itself integrated in the physical world. Identities, human connections, and financial assets are the same online and offline, and these are interoperable among different communities and applications within the metaverse. This will not be a single website or operator but a linked world consisting of a large number of environments, like the internet already has. The interoperability of the metaverse is the key to this.
This means that the metaverse is more a framework than a tool by itself, more an assembly of experiences than an application. Whatever it will look like, it will change and hopefully improve our digital experiences in the future. The real immersive experience of the metaverse is likely decades away and will be built by many different companies over time, though many pieces and components that could be integrated into it already exist.
Horizon Workrooms: a first step into the metaverse?
With a virtual reality press meeting, Facebook showed a preview of a new application, which is described as an 'open beta' for the Oculus Quest. The application is called Horizon Workrooms, and it is Facebook's first attempt at creating a VR experience for the office. Please take a look at the commercial here if you're interested in having an unbiased view before you read on.
Source: screenshot from Facebook Horizon Workrooms promotional video
Let me first start with some positive points about Horizon Workrooms: it is a very nicely made VR application, and it has many innovative features which probably need user training and adaption before you can use them well, but are interesting, such as the virtual keyboard. Facebook clearly put a lot of work in Horizon Workrooms. I worked in software development myself, so I know how difficult these projects can be.
What I do not understand though, is why Facebook is selling this as a step in the direction of the metaverse. When I look at Horizon Workrooms it looks like it can be a competitor for conference call services like Zoom (ZM) or Microsoft Teams (MSFT). Yes, you need a headset to use Workrooms, and yes it is a real VR experience, but it has nothing to do with the metaverse. Of course, it could eventually be integrated into it, but that's a wholly different story.
Speaking for myself, when I'm participating in a virtual meeting, video works just fine. I prefer the sights of real people instead of clumsy, cartoonesque animation figures without emotions and without legs. Also, usually, I am focused on the content of the meeting instead of how the meeting room looks, though VR is a cool feature. If somebody wants to share content, this can be done with Zoom, Teams, or Slack (WORK, CRM) very easily, and you do not need to learn to type a virtual keyboard or wear a headset for that.
Source: screenshot from Facebook Horizon Workrooms promotional video
Also, the biggest issue which I have with Workrooms, is that more than 70% of human communication is non-verbal. By downgrading humans to cartoon characters, this communication gets lost. Because of this, Horizon Workrooms seems like the sociopath's version of a digital meeting tool.
Next to these problems, Workrooms currently still has many bugs. Also, much is still unknown, like what the business model is (VR headsets? Ads?) and how the application integrates with the systems and software of other companies.
One of the most telling comments about Horizon Workrooms was made by Mark Zuckerberg himself:
“Five years from now,” Zuckerberg predicted, “people are going to be able to live where they want and work from wherever they want – but are going to be able to feel present as if they’re together when they’re doing that.”
Well, Mark, I hate to pop your bubble, but this already happened. In 2020. And with tools other than Horizon Workrooms. The application seems to answer a customer need that is already being met by video conference calls, just not in VR yet.
Oculus, Facebook and Zuckerberg
To better put Horizon Workrooms in perspective, we should consider where it all started for Facebook. In 2014, Facebook took over the VR headset company Oculus for a bit more than $2 billion. At that time, Zuckerberg stated that he saw VR as a new communication platform that would be able to take a prominent place in the current media world. Until now, this has not happened.
Since then, Facebook invested a lot of money in VR. It is estimated that almost a fifth of Facebook employees currently work in VR or AR, which are more than 10,000 people. Zuckerberg often vocalized his fascination with VR and how he believes it will change the world. Together with his more recent passion for the metaverse, this aligns well with the development of Horizon Workrooms.
Please bear with me here. I am not saying that virtual reality will not become a success. I am also not saying that it won't be a part of the metaverse. Very likely these two things will happen. What I am saying is that Facebook is focusing very heavily on VR as part of the metaverse, which is just a small part with corresponding market size.
The metaverse and Facebook's current ad-driven source of revenue
At the moment, Facebook is an incredible cashflow-producing machine, one of the best the world has ever seen. But it seems likely that the incredible dominance which Facebook currently enjoys in the advertising market cannot last forever. Other competitors might become more important, even larger legal challenges might surface, anything might happen. This is probably why the company is trying to reinvent itself, which is a good thing.
But let us discuss the metaverse a bit more. The current most valuable assets of Facebook are its users, the links and connections between them, and the content they create. In the metaverse, where every content and application is interoperable, and we all have identities, everyone can open a space anywhere and share pictures, videos, or other content on it. The Facebook application might be a part of it, but it will most likely become less prominent quite quickly because of this. The metaverse in its pure version completely undermines Facebook's revenue model.
Facebook thrives with its closed user experience controlled by its engineers and administrators. This is the way in which they created their powerful databases of customer information which have enabled them to become an advertisement leader. This closed experience directly contradicts the openness of the metaverse. Also, remember that the metaverse will be so large and extensive that it will be almost impossible for a single company to build it all. Creating a fully-fledged Facebook version of the metaverse is thus extremely unlikely.
So unless Facebook is trying to build a very limited and top-down Facebook metaverse in which they will build the sole backbone and need all users to create Facebook accounts and identities (in which case one would start to argue whether we could still call it 'the' metaverse), the company is shooting itself in its own foot with their metaverse investments.
The metaverse might be Facebook's biggest mistake
Currently, the advertising business of Facebook is firing on all cylinders. But with the current example of Horizon Workrooms, Facebook's first step in the direction of the metaverse, it seems not all is right.
CEO Mark Zuckerberg owns a majority of votes of Facebook, so it is important for investors to pay close attention to how he thinks about the future plans of Facebook. His enthusiasm for VR and the metaverse are obvious. But the acquisition of Oculus and the subsequent lack of tangible results from this investment have led to much emphasis being placed on Horizon Workrooms, which seems like a possible competitor for Zoom and MS Teams at best.
These developments seem to indicate that Facebook is very eager to move in the metaverse direction, but for investors, the lack of results is troubling. Also, the ad-driven business model of Facebook will, by definition, not work in the metaverse, unless Facebook is trying to create some kind of top-down variant of it for which every user would need to log in to his Facebook account. My gut feeling says that Zuckerberg aims for the latter by creating what he calls metaverse but is no way near the metaverse using the definitions laid out in this article.
In order to pull off the creation of such a 'narrowed down' version of the metaverse, Facebook would have to enter many other industries. In the Q2 2021 earnings call, Zuckerberg announced that they will start doing exactly this: "major efforts" in the areas of creators, e-commerce, and building the next computing platform. Fellow Seeking Alpha contributor 'Investing for the Future' recently wrote an excellent analysis of Facebook, in which he stated about the entry of Facebook in these additional business areas:
It is difficult to envision an eventual result that falls short of calamity unless the company retracts and amends its strategic goals to be more realistic and achievable. The new diversification appears to be a recipe for disaster - too much all at once.
I agree with this. Though Facebook will be fine in the coming years while they will still be able to create huge cashflows with their current assets, for the longer term, their metaverse ambitions and all that comes with it seem unfocused, with only meager results in the shape of Horizon Workrooms. These plans could lead to negative long-term consequences for the company and its investors.
Thank you for reading! Please let me know in the comment section what you think about the plans of Facebook with regard to the metaverse.
This article was written by
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