However, I believe that once thought to be a promising new opportunity for Meta may disappoint. After years of investments and nearly 2 years of Oculus Quest 2 product launch, the metaverse concept, and its hardware has not gone mainstream. Meta failed to capitalize on its early mover advantage. Today, with major smartphone makers like Apple and Samsung (OTCPK:SSNLF) seeking to enter the market, Meta’s metaverse future is questionable. How can Meta win in a competitive market if it could not win the market without any competitors?
There is no doubt that the world is becoming more digitalized. In fact, the metaverse may be the future. However, this may not mean that Meta will be the leader in the new metaverse market.
First, Meta, despite being one of the only major conglomerates competing in the VR headset market, failed to capitalize on its early mover advantage. Other than Sony’s (SONY) PlayStation headset, there are no major competitors in the market leading to Meta commanding over 90% of the market share. Using its deep pockets and acquisition of Oculus back in 2014, Meta has invested heavily in research and development while subsidizing its hardware to grow the market. Yet, Meta failed to be the clear winner today.
According to the 2022Q2 earnings report, Meta’s Reality Lab’s revenue accounted for 1.57% of the total revenue. 2022H1 growth compared to 2021H1 was 36.7% increasing from $837 million to $1.137 billion; however, losses grew equally fast at about 35.4% from $4.259 billion to $5.766 billion. The astounding loss came even with commanding over 90% of the market. Despite spending billions on reality labs business, revenue growth is merely on-par with the growth of losses.
Even worse for Meta, major competitors like Samsung and Apple with deep pockets, fan-base, and influence are likely to enter the market. Starting with Samsung, in March 2022, Samsung CEO Han Jong-Hee hinted at the company developing an extended reality, XR, device. A headset that is a mix of both AR and VR. The announcement comes after Samsung’s previous attempts in 2015 and 2017. Apple is a secretive company. They never announce that a new product is coming, but plentiful rumors from various analysts rarely completely miss a new product launch. According to Apple Insiders, Apple is rumored to be working on at least three AR and VR products.
Whether it is true that either Samsung or Apple is getting ready to launch an AR/VR/XR product in the near future, one thing is clear. These companies will not sit idle while Meta attempts to cannibalize the market if they believe that the metaverse will in fact be the future, and given Apple and Samsung’s experience in the smartphone market, influence, ecosystem, and strong fan base, Meta’s continued dominance is in question.
I do not think Meta can compete in this setting. Heavily subsidized hardware, early mover advantage, and tens of billions of dollars in investment failed to bring Meta’s product mainstream. How can they potentially compete against Apple and Samsung?
It is true that Meta has built out an impressive software infrastructure including a developer ecosystem, user-centric social platforms, games, productivity tools, and entertainment services. It is reasonable to argue that Apple, Samsung, or any other competitors may struggle to compete due to these matters; however, Apple and Samsung do not create apps and services in their App Stores and Play Stores themselves. Millions of app developers around the world do. These companies did not create social media used on their devices. Companies like Meta did. As such, if millions of developers start seeing opportunities in the market, it is highly likely that these developers will quickly fill Apple and Samsung’s respective app stores in the metaverse.
No Turning Back
With about $22 billion in cumulative losses from the Reality Labs business starting from 2020, there is no turning back for Meta. Not only is Meta doubling down on its investment and the future of metaverse, but the company also does not have much choice due to its slowing social media business. Metaverse is the only mode of new potential growth for the company.
Meta is in a tough situation. The company’s main advertisement on its social media is slowing to two structural risks. Younger generations have increasingly migrated to a new social media platform called TikTok as Instagram and Facebook started growing out of favor. Further, Meta’s no control over the hardware devices its apps operate has created advertisement risk as Apple has increased its user privacy capabilities by limiting app tracking hurting Meta. Google has also announced that it will follow Apple’s steps regarding privacy making the matter worse. Meta’s hopes in the metaverse future are not bright, either. After years of no major competition and tens of billions of dollars in investment, Meta has failed to bring its hardware and software product mainstream. Losses are growing on par with the revenue as potential major competitors like Samsung and Apple are hinting at entering the market. Overall, Meta Platforms is in a tough situation today.