The Federal Trade Commission (FTC) just sued to block Meta from acquiring a VR company, saying it would put the social media giant “one step closer to its ultimate goal of owning the entire ‘Metaverse.’”
That’s something CEO Mark Zuckerberg had better get on with, given the dismal Q2 earnings report the company released on Wednesday (July 27), after the markets closed. Meta missed analysts’ predictions on both earnings and revenue, with net income plummeting 36% to $6.7 billion.
The company also recorded its first-ever decline in quarterly revenues.
Consequently, Zuckerberg announced plans to decrease spending, pushing off some investments and slowing headcount growth — which is up 32% over a year ago, with 5,700 new hires in Q2.
Meta’s stock was down 8% about an hour after the markets opened today.
Read more: Meta Earnings Hit By Metaverse Investments As Stock Plunges 20%
The decline raises a serious question: Why is Zuckerberg betting his entire company on an immersive virtual world that even he acknowledges is seven to 10 years away from reality?
See also: What’s a Metaverse, and Why is One Having a Fashion Show?
That’s especially given that its share price was half of what it was at the beginning of the year — and 60% off its all-time high — before releasing its Q2 numbers.
A ‘Massive Opportunity’
That decadelong time frame does go some way towards explaining why not one single question from analysts on yesterday’s earnings call was on the metaverse. Instead, they focused on advertising; the growth of its main short-to-medium term project, Facebook Reels, a TikTok-style, short-form video platform targeting younger users; and the use of artificial intelligence both to place ads and direct Facebook and Instagram users to new content — something Zuckerberg called the first of “two major technological waves that we’re riding.”
The other, longer-term one is the metaverse, which he called a “massive opportunity.”
The metaverse, Zuckerberg said, “enables deeper social experiences where you feel a realistic sense of presence with other people, no matter where they are — whether you’re playing games or working for hours at a time, or you’re just jumping in for just a minute at a time to say hi to a friend or collaborate on a project quickly.”
He added: “I feel even more strongly now that developing these platforms will unlock hundreds of billions of dollars, if not trillions, over time.”
In the meantime, Meta’s creating a 2D Web version of Horizon World, the company’s fledgling gaming metaverse, so that it is accessible without a Quest 2 VR headset, which just had its price jacked up $100. The price is now $400 to $500, depending on available features.
See here: Zuckerberg Shows off Meta’s VR Progress
Meta’s main competitors are several blockchain-based metaverse projects that use cryptocurrencies for in-game payments, as well as several other non-blockchain game worlds like Roblox and Fortnite.
Also see: The Metaverse Wants to Monetize, but Does That Require Crypto?
The FTC Metaverse
Analysts may not think the metaverse is something worth focusing on yet, but the FTC seems to be a believer in Zuckerberg’s vision of an immersive VR future.
That would explain its decision to call Meta’s attempted acquisition of Within Limited — a company on the edge of the “online/virtual fitness industry” that likes to cite an $11.4 billion market size in 2021 — as reason enough to file an anti-trust lawsuit over an app on Horizon Worlds.
See more: Meta Opens Its Metaverse Platform to Payments, and It Doesn’t Come Cheap
Within Unlimited is the developer of Supernatural, in which one stands on a floating platform smashing flying objects with fists and virtual baseball bats, judging by its website. The game has a Facebook community with a massive 63,000 members.
The FTC said in an announcement that Meta’s “virtual reality empire includes the top-selling device” — that’s the Quest VR headset, with almost 15 million units sold — as well as “a leading app store, seven of the most successful developers, and one of the best-selling apps of all time.” The latter apparently refers to Beat Saber, in which one slashes at flying boxes with light sabers in time to music.
“Instead of competing on the merits, Meta is trying to buy its way to the top,” said John Newman, the deputy director of the FTC Bureau of Competition.
This comes against the backdrop of a pair of broader anti-trust suits brought by the FTC and by a group of 46 states, Guam and the District of Columbia seeking to break up Meta. In an Aug. 19 release, the FTC criticized then-Facebook’s “illegal buy-or-bury scheme to crush competition” after a “string of failed attempts to innovate.” In that case, the agency cited the 2012 purchase of Instagram and 2014 acquisition of WhatsApp messaging app. In comparison, Supernatural is something of a comedown.
Of course, in October The New York Times reported that a federal judge “eviscerated one of the federal government’s core arguments, that Facebook holds a monopoly over social networking,” and threw out both lawsuits, dealing “a major blow to attempts to rein in Big Tech.”
However the FTC was allowed to refile in January, with U.S. District Judge James Boasberg ruling that it had “cleared the pleading bar” despite warning that “the agency may well face a tall task down the road in proving its allegations,” NPR reported.
The states were not allowed to refile, although they appealed that ruling in March.
See more: US Chamber Urges Judge to Toss Antitrust Appeal of Facebook Case
At least Meta’s metaverse ambitions are (in large part) original — it was Zuckerberg’s embrace of the metaverse that took the idea of a making a virtual reality world from a blockchain/gaming industry pipe dream into a front-burner tech industry race embraced by venture capitalists and brand marketers around the world.
More like this: Metaverse Series: The Brands Are There. Will Eyeballs Follow?
The other big product push the company is focusing on, its TikTok-fighting Facebook Reels project, “doesn’t yet monetize at the same rate as Feed or Stories,” Zuckerberg said. “So in the near term, the faster that real growth is, the more revenue that actually displaces from higher monetizing services.”
That is to say, it hasn’t been able to innovate on anything less than a decade out, and the product it’s stealing to help bring back some younger users is actually cannibalizing revenues.
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