Meta is paying a high price for jumping the gun on the metaverse

Screenshot image from Metaverse/Horizon Worlds recreation of 2022 film Nope
(Image credit: Meta)

Virtual and augmented reality tech has certainly grown in recent years, with the VR headsets of today capable of a heck of a lot more than the very first model built in the late 1960s. That headset, nicknamed The Sword of Damocles, never made it out of the labs (mostly because it was literally strapped to the ceiling). More than 50 years later, most people would have no knowledge of The Sword of Damocles or its pioneering role in moving VR as a concept forward.

Fast forward to today and Meta, parent company of Facebook, has pinned its hopes on being able to tread a similar path. Having dedicated both time and considerable resources to developing its own metaverse – alongside VR/AR hardware like its latest Meta Quest Pro – there’s been no doubting Meta’s commitment to the future of virtual reality.

But that commitment is coming at an increasingly considerable cost for the social media giant. 

On Wednesday, Meta announced to investors its results for the third financial quarter of 2022, which ended on September 30. These results were… not great. Net income for the quarter declined more than 50% from the results of the same time last year, while spending increased by 19%. 

In a response to the dire quarterly results, Meta’s share prices took a significant tumble of 25%. This drop saw as much as $80 billion wiped from the company’s market value.

Yet for Meta’s leadership, this is a price they’re willing to pay to stake their claim to the metaverse.

No end in sight

In the same breath as offering suggestions that Meta will launch (another) new Meta Quest headset next year, the company’s Chief Financial Officer David Wehner also pointed to a big source of the underlying problems.

“Our growth in cost of revenue is expected to accelerate, driven by infrastructure-related expenses and, to a lesser extent, Reality Labs hardware costs driven by the launch of our next generation of our consumer Quest headset later next year,” he said in a statement to investors. “We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year.”

Reality Labs, Meta’s metaverse-focused team responsible for Meta Quest development, reported a total loss of $3.67 billion for the year’s third quarter. That’s still only a fraction of the almost $20 billion in total losses attributed to Reality Labs since the start of 2021. This isn’t a problem expected to go away for Meta, either, with both Wehner and CEO Mark Zuckerberg openly predicting the losses to continue growing.

Investors in response – if the fall in Meta’s share price is any indication – have made their frustrations with Meta’s ongoing virtual reality focus clear. This follows the now well documented frustrations of many of Meta’s own employees, who are especially critical of Meta’s flagship metaverse offering Horizon Worlds (formerly Facebook Horizon). Existing metaverse users also appear to share this disdain for Meta’s headline act, with The Wall Street Journal reporting that monthly users of Horizon Worlds have fallen to below 200,000 from a reported high of 300,000 in February.

An uncomfortable video released back in July is a decent demonstration of some of Horizon Worlds’ (many) woes. The clip, published by Meta, finds actor/director Jordan Peele ‘excited’ at being taken on a tour of a Horizon Worlds recreation of his most recent film. The response from fans of both Peele and Meta’s virtual reality ambitions told the tale of this deeply flawed, shoddily rendered second world.

Still, Zuckerberg is bullish on the potential of his company’s immense investment in the metaverse and virtual reality hardware.

“Look I get that a lot of people might disagree with this investment,” Zuckerberg reportedly told a conference of analysts via phone on Wednesday. “But from what I can tell, I think this is going to be a very important thing and I think it would be a mistake for us to not focus on any of these areas, which I think are going to be fundamentally important to the future.”

Playing the long game

Odds are Ivan Sutherland – the man behind The Sword of Damocles, the world’s first VR headset – thought much the same way as Zuckerberg does.

For Sutherland, that bullishness came at a time far removed from his aspirations becoming reality, but also at far less of a financial cost. 

There’s no doubt there’s a future for virtual and augmented reality – potentially even a lucrative one. As the hardware and software continues to improve and the market becomes more competitive, prices for headsets should drop, allowing more consumers to try it for themselves. 

But we clearly aren’t there yet, and if Meta’s Horizon Worlds are any indication, we may not even be remotely close.

Meta’s latest hardware release is further proof of this – a product arguably too expensive for what it offers and hopes to achieve. While a necessary step in improving VR and AR’s appeal to business, it will do little to further adoption of the metaverse by consumers. Or deliver a return on investment for Meta.

By the time we do get to the utopia Mark Zuckerberg seems to be imagining for the metaverse’s future, the losses will have been significant . And in the meantime, there’s every chance a rival could step forward and cash in on the fruits of Meta’s labor – and leave Meta counting the costs of going too hard, too early.

James Cutler
Staff Writer

James is a senior journalist with the TechRadar Australia team, covering news, analysis and reviews in the worlds of tech and the web with a particular focus on smartphones, TVs and home entertainment, AR/VR, gaming and digital behaviour trends. He has worked for over six years in broadcast, digital and print journalism in Australia and also spent time as a nationally recognised academic specialising in social and digital behaviour trends. In his spare time, he can typically be found bouncing between one of a number of gaming platforms or watching anything horror.