Future of Digital Realities
【Metaverse Insight】 Roblox, as the first publicly traded metaverse company, also experienced significant losses in the second quarter, failing to meet expectations.
Not long ago, Meta's parent company, Facebook, released its second-quarter financial report for the fiscal year ending on June 30, 2023.
From the financial data, the company saw positive growth in revenue and profits during the second quarter. However, RealityLabs, responsible for Meta's metaverse endeavors, incurred a loss of $3.739 billion in the second quarter, expanding by 33% compared to the same period last year.
Since the fourth quarter of 2020, this division's accumulated losses have reached approximately $33.7 billion. Meta's CEO, Mark Zuckerberg, acknowledged that the metaverse is a long-term investment plan.
Is the once fervent metaverse indeed cooling down? What can be confirmed is that investments from industries and businesses in the metaverse are becoming more rational.
Metaverse History and Loss Status
In Meta's financial report, the RealityLabs division is responsible for both metaverse and virtual reality (VR) businesses. This quarter, the division's losses reached $3.73 billion, exceeding the anticipated $3.68 billion and surpassing the $2.8 billion from the same period last year. It's worth noting that this lab has suffered losses exceeding $10 billion for two consecutive years. In 2022, the loss was $13.717 billion, and in 2021, it was $10.193 billion.
Meta's CFO, Susan Li, admitted that losses are expected to increase year-on-year in 2024. Nevertheless, the company's ambitions in business development remain unchanged, and they will evaluate the returns on these investments in the long run.
Investors have consistently urged Zuckerberg to be cautious in spending on metaverse business. Last year, Brad Gerstner, Chairman of Altimeter Capital, suggested that Meta cap its annual metaverse spending at under $5 billion. He believed that for a project that might take a decade to yield results, an investment exceeding a hundred billion dollars is overly vast and risky.
During the earnings call, Zuckerberg repeatedly mentioned opportunities related to artificial intelligence (AI). He previously stated that Meta wouldn't miss the ongoing AI trend and will continue to invest in the combination of metaverse and AI.
It's worth noting that since November of last year, Meta has undergone several rounds of layoffs. The financial report shows that by the end of the second quarter of this year, Meta's employee count decreased by 14% year-on-year, totaling 71,469 employees.
Since September 2021, Meta's stock price has been declining from its historical high of $384.33. Throughout 2022, Meta's stock price fell by 64%, performing the worst among major tech companies in the United States. The general consensus in the industry is that this is mainly due to Meta's full-on investment in the metaverse without a clear transformation path, leading to losses.
Nevertheless, Meta continues to increase its investment in the metaverse. Observers state that if they were to announce a halt in increasing investments now, it would mean admitting failure in the previous metaverse transformation. For a project that might take a decade to yield returns, a failure in investments worth hundreds of billions of dollars would not only impact the capital market but also severely damage confidence. Furthermore, given Meta's current dominance in the virtual reality headset market and its various layouts in the metaverse sector, the company has the capability to continue investing.
Rational Trend in Metaverse
Investments Accompanying Meta's continuous losses, tech giants globally are adopting a more cautious approach to metaverse investments. As early as August of last year, Tan Ping, Head of Alibaba's Dharma Institute's XR Lab, announced his departure. On February 16th this year, Tencent announced hardware development adjustments in its gaming XR business and made changes to related teams. Subsequently, Baidu's Vice President and Head of the "Xiran" metaverse product, Ma Jie, announced his departure, moving to the field of large models as an executive of "01World". Furthermore, Microsoft carried out significant layoffs at the beginning of 2023, disbanding the entire team behind the Mixed Reality Toolkit (MRTK) and shutting down its crucial VR social platform, AltSpaceVR.
Consumer-level metaverse activities are also cooling down. ByteDance closed the metaverse social app "Party Island," and Tencent's "HuanCore" platform faced dismantling. Taking the once red-hot metaverse real estate as an example, data indicates that in the first half of 2022, the average price of metaverse real estate dropped by 85%, and the number of sales plummeted from 16,000 transactions in 2021 to 2,000 transactions in August 2022, a decrease of 87.5%.
Even the most valuable and deployable wearable devices in the metaverse sector, such as headsets, have experienced a noticeable decline. According to data from the International Data Corporation (IDC), global shipments of AR/VR headsets reached 11.23 million units in 2021, a year-on-year increase of 92.1%. However, in 2022, global shipments of AR/VR headsets dropped to 8.8 million units, a significant decline, with Meta accounting for nearly 80% of the shipments. In the first quarter of 2023, global shipments of AR/VR headsets decreased by 54.4% year-on-year.
This has left Meta, which is fully invested in the metaverse, increasingly isolated. Zuckerberg stated that many companies have not taken large-scale actions in the metaverse field, which is unfortunate for the entire industry.
Nevertheless, there are still exciting developments in the market. For example, in June of this year, Apple introduced mixed reality (MR) headsets, injecting new vitality into the VR and metaverse industry. Due to Apple's influence in the consumer electronics sector, people anticipate that Apple's entry could trigger a new wave of enthusiasm in the metaverse industry. HTC's Senior Vice President, Bao Yongzhe, stated that Apple's entry will bring many lifestyle-related applications that are more user-friendly and more likely to become popular in the consumer market.
Furthermore, at the recent 20th China Digital Interactive Entertainment Exhibition (2023 ChinaJoy), numerous metaverse-related products were showcased alongside highly anticipated AI innovations. The head of PICO, a VR manufacturer under ByteDance, mentioned that over the past year, market attention has gradually cooled, and the phenomenon of large companies entering and capital chasing seems to be fading. However, he pointed out that this does not imply a problem with the metaverse industry itself; rather, it's more of an emotional fluctuation that arises after the market hype recedes.
The Future of the Metaverse: Where to Go?
The concept of the metaverse first appeared in Neal Stephenson's 1992 science fiction novel "Snow Crash," where a parallel virtual world called the metaverse existed alongside the real world. In 2011, Meta announced the full investment in the metaverse, sparking widespread industry attention and investment fervor.
At a time when the metaverse industry is facing challenges, some industry insiders believe that the metaverse has become "outdated," at least for the next few years, making it difficult to achieve solid grounding and profitability.
However, many still hold a positive view of the metaverse's prospects. Vishal Shah, a high-ranking executive at Meta, stated that the metaverse hasn't disappeared; what has disappeared is the excessive hype surrounding it. He believes that tech companies are no longer pursuing diverse "metaverse spaces" but are instead focusing on building their ideal "metaverse worlds." In the face of waning excitement, Meta is concentrating on practical efforts to create the metaverse they envision. He views the metaverse as a "decade-long journey that has just begun."
Currently, most metaverse activities are concentrated in the consumer-oriented gaming and entertainment sector, but the enterprise sector (B2B) is gaining more attention. These applications have already expanded into various fields such as production, manufacturing, entertainment, education, training, and exhibitions. In the enterprise market, companies like Microsoft, NVIDIA, and Nissan are leveraging "digital twins" to drive the implementation of corporate metaverses. For example, BMW announced its adoption of NVIDIA's Omniverse platform to create "digital twins" in 31 factories worldwide.
Matthew Ball, known as the "father of metaverse business," pointed out that the premise of the metaverse is interoperability, which involves exchanging data between different autonomous systems. This involves trillions of dollars in risk and billions of dollars in investment. Given the current situation, achieving this goal is incredibly challenging.
After all, the metaverse's ecological system involves complex factors such as hardware, interaction, experience, and content. No single company can support the entire metaverse. Wu Gaobin believes that as an emerging technology and industry, the metaverse is still in its early stages and faces challenges in terms of technology and business models. Additionally, the metaverse's development requires cross-industry and cross-disciplinary collaboration, necessitating joint efforts from all parties. He encourages people not to focus solely on the changes in the next one or two years but to pay more attention to the changes and opportunities over the next decade.