Meta: virtual reality ambitions meet real-world problems

The avatars in Meta’s version of the metaverse have legs now. For tech giant Meta, that counts as success. It needs every win it can get. Mark Zuckerberg’s plan to restructure the company via a “Year of Efficiency”, is largely an attempt to wind back the clock. 

A manifesto from Zuckerberg on Tuesday claims Meta wants to foster a connection with users of the kind they feel when with someone they love. About 21,000 employees hit by job cuts over the past four months must feel less warmly towards the Facebook owner.

Can Instagram posts and virtual reality games create this feeling either? It seems unlikely. Nor is it clear how it will raise digital advertising revenue or convince customers to buy VR headsets costing $1,500. 

Note too that Zuckerberg says engineers joining teams work better in-person. That is rich coming from someone who wants us all to plug into virtual worlds.

Crushing privacy changes have driven Meta’s cost cuts. Apple has turned off “identifier for advertisers” by default. European regulators are five years into GDPR consumer protection. Both hamper Meta’s ability to offer granular detail for targeting digital ads.

Add an economic slowdown and it is no wonder revenue fell 1 per cent last year. In the meantime, Meta is pouring billions of dollars into its VR project. It has teams working on generative artificial intelligence too. This might give users more tools to play with and help to create marketing campaigns, but it comes at a high price. Meta’s net income margin is down more than a third.

Cost cuts mean full-year expenses will be up to $92bn, compared with $95bn before, according to Meta.

Slowing metaverse spending would do more. Mizuho Bank points out that Meta’s research and development spend is proportionally twice the size of Google’s parent Alphabet. Meta’s emphasis on VR distracts from the fact that it is still the world’s largest social media company, with more than 2bn users. Reminding investors of this, not the progress of cartoon avatars, is Zuckerberg’s real priority.