Zuckerberg gets lost in space

Frustration at the Meta chief’s focus on virtual reality is growing, Callum Jones and Katie Prescott explain.

From the outset, the founder of the world’s most powerful social media company wanted everyone to know who was running the show. A single line at the bottom of ‘‘the facebook’’, as it was known in February 2004, made it clear that this was ‘‘a Mark Zuckerberg production’’.

Each act has proven bigger, and more profitable, than the last. But 17 years after its creation in a Harvard University dorm room, as political scrutiny intensifies, alarm over the product grows, and competition mounts, Zuckerberg has pivoted the business towards the internet’s next generation.

Meta Platforms, as it was rechristened last year, has embarked upon an audacious – and extraordinarily expensive – attempt to build the metaverse, a virtual realm where users can interact without physically being in the same space.

Meta believes that success here will be lucrative. The global metaverse economy could be worth more than US$3 trillion globally within a decade, according to research Meta commissioned by the Analysis Group, an economic consultancy.

However, Zuckerberg faces questions about whether he is the man, and Meta the company, to unlock this new frontier.

The vision may be exciting, but the time and money that Meta is spending on its execution has set off alarm bells on Wall Street, where impatience is rising.

In the 11 months since Facebook announced its new name, the company’s shares have fallen 55%. This year, its chief executive has seen his personal fortune, largely tied up in stock, plunge by nearly US$20 billion (NZ$34b), according to Bloomberg.

Some analysts have started to question the wisdom of focusing on a wholly new enterprise when Meta’s apps – Facebook, Instagram, WhatsApp and Messenger – face an array of challenges, and continue to generate 98 per cent of its revenue.

Joseph Teasdale, head of technology at Enders Analysis, says: ‘‘Meta wanted to invest in the metaverse while the core business was still churning out cash, but pressure from its competitors and the subsequent revenue decline means it is now under pressure to clamp down on these rather over-the-top experiments to develop a virtual world that noone wants to spend time in.’’

As it ploughs eye-watering sums into the metaverse, Meta executives say the endeavour stands to lose significant amounts of cash for at least several years.

The company’s first annual drop in quarterly revenue, reported this year, sparked accusations that the metaverse amounts to a costly distraction just as the digital advertising market is slowing.

Apple’s privacy changes have made it markedly more difficult to track users, and TikTok continues its acceleration into social media’s top tier.

‘‘They’ve been caught with their pants down,’’ said Neil Campling, head of technology research at Mirabaud Securities, who suggested that Meta was in the midst of an identity crisis. ‘‘It doesn’t know what it wants to be.’’

Regardless of concern on Wall Street or among investors, with about 54.4% of the voting power, Zuckerberg – Meta’s founder, chairman and chief executive – can pretty much do as he pleases.

The graphics of the metaverse have been mocked for being crude and comical, in particular Zuckerberg’s avatar.

Then there’s the hardware. Unlike other platforms, Meta’s metaverse is entered via headsets. It has released two sets of virtual reality goggles, the latest priced at US$399.

Raj Shah, a managing partner at digital consultancy Publicis Sapient and a shareholder in Meta, describes himself as ‘‘50-50’’ on whether Zuckerberg’s vision is the right one. However, he expects engagement with the metaverse to be widespread within five to 10 years. The software will take less time to advance than the hardware, such as virtual reality glasses, he says.

Meta will update investors and developers next month at Connect, the company’s annual metaverse conference. The question is whether this latest Zuckerberg production will be remembered for its journey into this brave new world or its struggle in the real one.

In July, Zuckerberg painted a gloomy picture for Meta investors when he reported the company’s first year-on-year quarterly revenue decline, of 1%. ‘‘We seem to have entered an economic downturn that will have a broad impact on the digital advertising business,’’ he said.

Part of that decline was less about the economy, however, and more about the rise of TikTok, Meta’s rival for advertising income and the valuable youth market.

While the video app, owned by ByteDance of China, has half the number of users as Facebook, the amount of time they spend watching videos has overtaken that of every other app.

Debra Aho Williamson, an analyst at research group Insider Intelligence, said that Meta – which still controls 21.4% of the digital advertising market versus TikTok’s 1.9% – remained way ahead of all its rivals other than Alphabet, the owner of Google and YouTube. ‘‘Meta still has a huge head start.’’

In response to the TikTok threat, Meta has introduced short films on Facebook and Instagram called ‘‘Reels’’, but they do not have the same addictive stardust.

A leaked document obtained by The Wall Street Journal revealed that Instagram users are spending 17.6 million hours a day watching Reels, less than 10% of the 197.8 million hours spent by TikTok users.

Katy Howell, chief executive of Immediate Future, a social media agency, said: ‘‘TikTok is also seen as more authentic. It has definitely got Gen Z on board.’’

The move from images to video on Instagram has also been unpopular with users. It is ‘‘a more disruptive format for Facebook and Instagram to incorporate’’, said research company Enders Analysis. ‘‘Instagram users are more comfortable sharing photos than videos, while smaller advertisers can struggle to create video ads.’’

The Wall Street Journal reported earlier this year that Meta had hired a Republican Party-linked consulting firm to ‘‘orchestrate a nationwide campaign’’ against TikTok.

Zuckerberg faces questions about whether he is the man, and Meta the company, to unlock this new frontier.