Ten Years and $100 Billion Later: The Current State of Meta’s Metaverse
Mark Zuckerberg’s internal memo from 2015 outlined an ambitious vision for the future, predicting that virtual reality (VR) and augmented reality (AR) would emerge as the next major computing platforms following the smartphone era. He expressed concern over Meta’s vulnerability in the mobile domain, dominated by Google and Apple, and emphasized the need for the company to establish a significant platform and key applications to secure its place in the evolving tech landscape. This strategic thinking reflects Meta’s desire to avoid previous pitfalls, particularly its late recognition of the smartphone revolution.
A Project of Astronomical Proportions
Since rebranding to Meta, the company has poured vast amounts of capital into Reality Labs, which focuses on VR and AR innovations. This investment is driven not only by the potential of these technologies to gain widespread acceptance but also by the lessons learned from Facebook’s near-miss with the mobile revolution. The company is determined to not repeat past mistakes by becoming overly reliant on dominant mobile platforms. Since late 2020, Meta has reported expenses for Reality Labs totaling approximately $83 billion, with estimates suggesting that total investments could surpass $100 billion by the third quarter of 2025. The initial investment began with the acquisition of Oculus VR for $3 billion in 2014, marking the start of Meta’s foray into immersive technologies.
A Striking Contrast Between Investment and Revenue
Despite these massive expenditures, Meta’s financial returns from VR and AR have been disappointingly low. Since the end of 2020, while the company incurred expenses nearing $83 billion, its revenues from these sectors have only reached about $10 billion. For perspective, Meta’s advertising revenue alone was around $50 billion in just the last quarter. This disparity highlights the challenges the company faces in monetizing its VR and AR strategies.
Virtual Reality: Still in the Self-Discovery Phase
Reflecting on the ten years since Zuckerberg’s memo, what progress has Meta made? The Meta Quest, its flagship VR headset, currently leads the VR market and represents the bulk of Reality Labs’ revenue. However, this dominance is partly due to aggressive cross-subsidization practices that have sidelined competitors. While gaming remains the most lucrative application for VR, it still represents a small fraction of the overall gaming market, accounting for less than one percent of total revenue. Recently, the VR segment has experienced a slowdown, as evidenced by the lukewarm reception of the Quest 3 and Quest 3S headsets, which failed to meet the success of their earlier versions. Interestingly, teenagers have emerged as the primary demographic engaging with VR.
Targeting the Younger Generation
A positive development for Meta is that its Quest platform is especially appealing to children and teenagers, a demographic that has propelled platforms like “Roblox” to significant popularity. This contrasts with Meta’s own metaverse initiative, “Horizon Worlds,” which has struggled to gain traction. Looking ahead, Meta hopes that Generation Alpha, who are growing up with VR as a normalized part of life, will embrace these technologies and see them as integral to their social interactions. However, broader acceptance remains elusive, as the technology is still searching for a compelling use case that resonates with the general public beyond gaming and entertainment.
Augmented Reality: A Billion-Dollar Gamble with Uncertain Outcomes
While Reality Labs is primarily known for its VR offerings, a substantial portion of its investment is directed toward augmented reality, particularly in developing Meta’s forthcoming AR glasses. Zuckerberg has highlighted the ambitious nature of AR projects, which he believes hold significant long-term potential. The complexity of developing AR technology, including custom chips and new supply chains, has contributed to the high costs. The Meta Orion prototype represents this vision, boasting a 70-degree field of view while remaining close to the size of regular eyeglasses.
A Long Road Ahead
The anticipated AR glasses are said to be on the horizon, but it may take a decade before they achieve mass-market viability. In the interim, Meta is testing the waters with smart glasses like the Ray-Ban Meta glasses, which have unexpectedly generated interest and prompted competitors like Google and Apple to enter the market with similar products. The appeal of these devices lies in their potential to blend seamlessly into everyday life while providing useful augmented reality features.
Evolution Rather than Revolution
In his 2015 memo, Zuckerberg laid out three key objectives for VR and AR. A decade later, Meta has yet to fulfill its strategic goal of reducing reliance on Google and Apple, nor has it achieved financial profitability in these sectors, which remain highly costly. However, the company appears to be on track to establish itself as an innovation leader in the space, particularly with its stylish Ray-Ban Meta glasses that have successfully merged tech with fashion. Meta currently leads the market in both VR and smart glasses, setting trends that competitors are struggling to match. Despite the challenges and slow progress, Meta’s foundational work has been crucial in establishing a consumer market for VR, which could pave the way for future developments in both VR and AR. As Michael Abrash, Meta’s research director, wryly noted, development timelines often take longer than anticipated, suggesting that the full impact of Meta’s investments may only become clear in the future.
