Meta Retreats From the Metaverse As $77 Billion Invested Yields Nothing

The metaverse always seemed like a delusion enabled by excess profits available to a guy who had had one good idea (Facebook), acquired the products of others to create a moat (Instagram) and has struggled ever since to come up with his next big thing. That it didn't work comes as no surprise: there was never a compelling story, let alone need; the technology itself was uncertain and while some advertising agencies thought it was cool (a clear warning sign in this era), consumers largely yawned. 

So now, a wasted $77 billion later, the larger question is where this leaves Meta. The metaverse is a black mark, suggesting flighty, arrogant, self-indulgent leadership with no clear strategy since COO Sheryl Sandberg left. And it creates negative implications for the company's future, impacting perceptions of the competence and sustainability its commitment to AI. 

 

Megan Bobrowsky and Georgia Wells report in the Wall Street Journal:

Meta CEO Mark Zuckerberg once called the Metaverse the future of the company. (But) Meta has seen operating losses of more than $77 billion since 2020 in its Reality Labs division, which includes its metaverse work. The company (now) plans to shift spending from the metaverse to artificial-intelligence wearables. The immersive technology hasn’t gained the traction the company had anticipated, grappling with glitchy technology, uninterested users and a lack of clarity about what it would take to succeed. Meta is now giving priority to investments in AI (though) Meta shares fell after the company warned of “aggressive” capital expenditure growth to stay competitive in the AI arms race.

Meta Platforms META 1.80%increase; green up pointing triangle is planning cuts to the metaverse, an arena Chief Executive Mark Zuckerberg once called the future of the company.

The proposed changes are part of Meta’s annual budget planning for 2026, and the company plans to shift spending from the metaverse to artificial-intelligence wearables, according to a person familiar with the matter. Several tech companies including Apple are working on wearable devices they believe might become the next major computing platform.

The decision marks a sharp departure from the vision Zuckerberg laid out in 2021, when he changed the name of his company to Meta Platforms, from Facebook, to reflect his belief in growth opportunities in the online digital realm known as the metaverse. Meta has seen operating losses of more than $77 billion since 2020 in its Reality Labs division, which includes its metaverse work.

On Thursday, investors cheered Meta’s decision, reflecting concern many have voiced about the direction of the money-losing bet over the years. Shares jumped more than 3%.

“Within our overall Reality Labs portfolio, we are shifting some of our investment from metaverse toward AI glasses and wearables given the momentum there,” a spokeswoman said.

While Zuckerberg has regularly asked executives to trim their budgets in recent years, he is focusing on the metaverse group now because the immersive technology hasn’t gained the traction the company had anticipated, according to the person familiar with the matter.

 

While most of Zuckerberg’s public remarks for the past year have been about AI, he has insisted a few times that the metaverse bet could yet pay off. In January, he told investors that 2025 would be a “pivotal” year for the metaverse.

“This is the year when a number of the long-term investments that we’ve been working on that will make the metaverse more visually stunning and inspiring will really start to land,” he said.

Meta’s plan to reduce its metaverse budget was earlier reported by Bloomberg.

Early on, Meta’s bet-the-company move on the metaverse hit rough patches. About a year after the rebrand, internal company documents showed the transition grappling with glitchy technology, uninterested users and a lack of clarity about what it would take to succeed. At the time, Zuckerberg said the transition to a more-immersive online experience would take years.

Meanwhile, artificial intelligence has emerged as the primary focus of where the broader tech industry sees the future. Tech executives believe AI will reshape how consumers interact with tech as well as how the industry makes money.

Meta is now giving priority to investments in AI, including its AI glasses. In June, Zuckerberg announced the creation of a Superintelligence division to recognize the effort formally.

He paid special attention to researcher recruiting, to reflect the new primacy of AI. He offered $100 million pay packages to AI specialists to lure them to join his Superintelligence division and hired around 50 people.

The company’s Ray-Ban AI glasses have gained momentum in recent years. Meta’s hardware partner, EssilorLuxottica, said on a call this year that it had sold more than two million pairs and expected to expand production capacity to 10 million pairs annually by the end of 2026.

Investors are closely watching Meta’s AI transformation. To streamline its AI division, in October, Meta announced internally that the company would cut about 600 jobs in its AI division. The cuts were aimed at the company’s teams focused on long-term AI research and other initiatives, and not the new team that houses Zuckerberg’s multimillion-dollar hires. Weeks later, Meta shares fell after the company warned of “aggressive” capital expenditure growth to stay competitive in the AI arms race.