Many investors suspect that Mark Zuckerberg’s dream of the metaverse is doomed, causing Meta stock to drop by more than half over the past six months.
Now they have a prominent critic to back them up.
Vitalik Buterin, the creator of the Ethereum blockchain, which is second only to Bitcoin in total market capitalization, said the Facebook founder and his company Meta are jumping with billions of dollars in investments to create products that may not eventually find a market.
“It’s too early to know what people really want,” he wrote on Saturday. “So anything Facebook creates now will go wrong.”
Zuckerberg can not dismiss the criticism of Buterin lightly, since the latter describes himself as a believer in metaphysics.
Buterin has good reason to want him to succeed rather than fail. That’s because the two cryptocurrencies bearing his signature, ETC and later ETH, are expected to facilitate all kinds of commerce in the metaverse and its decentralized financial system known as Web3.
For now, not even Zuckerberg has denied that he still has a long way to go.
The fledgling Meta metaverse endeavor, consolidated in its Reality Labs division, posted a second-quarter operating loss of approximately $3 billion.
Combined with a continued decline in profits from its core Facebook and Instagram businesses, quarterly profitability has fallen to just 29% from 43% in the same period a year earlier. This was the worst Meta result since separate financials broke out in the last quarter of 2020.
Web2 of Facebook becomes Meta Web3
This has raised concerns that the group’s main cash cows can no longer compete with the hugely popular Chinese rival TikTok app ByteDance and they are now entering a period of managed decline.
Shares in the Meta are down 54% since the beginning of this year versus just a 20% drop in the broader tech Nasdaq Composite Index.
Zuckerberg renamed the company from Facebook — closely associated with the era of centralized and commercially driven Web2 — in part to demonstrate his commitment to driving future growth in new areas of business.
“Given some of the product and business limitations we’re facing now, I feel even more strongly now that developing these platforms will unlock hundreds of billions, if not trillions, over time,” he told investors Wednesday after reporting his first-ever revenue decline.
He acknowledged that building the metaverse would be “obviously a very costly task over the next several years” and pledged to slow the pace of some related expenditures and delay investments further down the road.
And while Meta expects Reality Labs’ third-quarter revenue to decline sequentially over the second quarter, Zuckerberg reiterated he was confident it would prove to be a “tremendous opportunity” for the company worth the cost.
“It allows for deeper social experiences where you feel a realistic sense of the presence of other people, no matter where they are,” Zuckerberg explained.
No business model installed
The metaverse is likely years away, but companies are already buying virtual real estate despite there being no proven business model.
Yuga Labs recently attempted to build on its success as the creator of the Bored Ape Yacht Club’s pool of non-fungible tokens (NFTs) by launching a demo of another new metaverse that attracted 4,500 people last month.
Aside from the intricacies of achieving a shared virtual experience in real time, it was not clear what might drive participation beyond financial speculation, for example in the value of Otherdeed NFTs, which are traded on OpenSea.
Most video games already offer stories, quests, and skill trees, and players, a potential core audience comfortable in living in virtual worlds, were clearly hostile to attempts to monetize the space through the unnecessary addition of NFTs.
“I don’t think any of the company’s current attempts to intentionally create a metaverse are going anywhere,” Buterin wrote.
Meanwhile, Meta is pinning hopes on this year’s launch of Project Cambria, which is expected to be the successor to the Oculus Quest 2 VR headset.
“It will be a high-end device focused on professional and business users, with high-resolution mixed color reality,” Zuckerberg said on Wednesday. “I think this is going to amaze people quite a bit.”
Both Buterin and Zuckerberg could end up being right about the metaverse in different ways. It may end up being the cornerstone of future social interaction, but it may not be Meta that reaps the rewards.
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