The risks and challenges of Zuckerberg’s Metaverse

Marck Zuckerberg is ecstatic about the metaverse. At the Facebook Connect conference yesterday, he was seen as a child with a new toy. A toy, by the way, quite expensive. So much so that, if it were a frog, it could add headaches to a company that has suffered from chronic migraines for several years. And it is that the newborn Meta is investing huge amounts of money only in the development of this digital universe, a disbursement that represents the most risky bet of a technology company in a single project to date.

Facebook declared in its 2020 fiscal results that it had invested close to $ 18.5 billion in research and development (R&D) that year, much of it for its virtual reality (VR) and augmented reality (AR) division. ), known as Facebook Reality Labs. That is, the one in charge of developing everything related to the metaverse.

These global figures are not at all striking. Big technology companies are used to investing huge amounts of money in R&D for projects that end up in nothing. Without going any further, in 2020 Amazon allocated almost 43,000 million dollars for this purpose in research related to artificial intelligence, machine learning and artificial vision, while Alphabet spent about 27,500 million dollars for this same purpose, mainly in artificial intelligence and new software and devices, according to information from Nasqad.

What is striking is the percentage that this expense represents for these companies compared to their income. For Amazon, which was the one that disbursed the most money in 2020 in R&D, the item only accounted for 11% of its net sales, while in Alphabet, the second in the list by volume of expenditure, that percentage was slightly more 15% of your income. For Facebook, which was the fifth company that invested the most in research and development in 2020, the percentage was already 21% of its turnover in that year.

If we look only at the percentage of revenue that large technology companies allocate to R&D, Facebook already topped the list in 2020 ahead of Amazon, Google, Huawei (14%) or Microsoft (13%). And now come the curves. In the presentation of results for the third quarter of 2021, Zuckerberg assured that this year they will reduce their operating profits by about 10 billion dollars due to the increase in investment in Facebook Reality Labs. Which would mean, in the absence of annual results, that the investment in research and development at Meta could reach $ 28.5 billion in 2021.

That amount, according to Facebook’s annual balance sheet in 2020, would mean investing around 30% of its income in R&D, especially in its metaverse project through Facebook Reality Labs. However, if the figures quarterly turnover that the Zuckerberg company has been presenting throughout 2021 remains in the last three months of the year, that percentage would actually be around 25%, since this year they are earning more than the previous one.

High investment for a single project

Whether 25% or 30% of its income is what Facebook finally allocates to R&D this year, the truth is that any of these percentages is quite large compared to what other large technology companies invest, especially if we take into account that a good part of that money is going to be used exclusively for the development of the metaverse.

And it is that technology companies are used to spending large amounts of money, often lost funds, researching new products and services, but they rarely put so many eggs in the same basket. All of them greatly diversify their projects, although they fall within the same discipline, such as artificial intelligence. Zuckerberg, on the other hand, plays almost everything to a single card that, although it looks like an ace, is still face down on the technology board.

Market estimates, of course, invite optimism: according to Bloomberg, the business of this new internet frontier could move around 800,000 million dollars a year by 2024. But they are just that, projections that may well not come true.

Zuckerberg, however, seems to have blind faith in those estimates and in the internal market research Facebook must have done on the economic prospects of the metaverse.

Money to burn?

That faith is, of course, much easier to have with a cushion of nearly $ 30 billion in benefits behind your back – according to 2020 data. Facebook has money to burn to waste, and if the bet turns out that it does not turn out as well as they expect, they have the ability to maneuver and take their ships to other more propitious waters.

At least if everything continues as before, which is far from clear. Facebook is growing a lot, a lot, in 2021, according to what its quarterly results show, but its autumn has turned a dire black after leaks of internal documents that, among other things, show that the response of the social network to messages about human trafficking, organ sales, pornography, drugs, violence and hatred is rather lax, according to the Wall Street Journal.

The Facebook Files represent a very serious reputational crisis for Facebook, which could lead to the loss of advertisers, and also a judicial scrutiny that could translate into significant financial penalties such as the one received in the Cambridge Analytica case. If all this affects the company’s bottom line, risking so much in the metaverse could turn, if it goes wrong, a severe economic blow for the technology giant.

Facebook, or rather Meta, is at a crucial moment in its history. Besieged by scandals, she embarks on the costly adventure of discovering a new world. For the moment, its coffers can support the company, we will see if it is able to maintain it in the event that profits are reduced and, above all, if the metaverse does not turn out to be the Potosí that Zuckerberg predicts.

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