Wednesday, August 17

Zuckerberg risks everything to the metaverse, and risks a lot: no technology has invested so much in a single project to date

Marck Zuckerberg is ecstatic about the metaverse. On yesterday’s Facebook Connect conference he looked like 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 is that the newborn Meta is investing huge amounts of money just in the development of this digital universe, an outlay that represents the riskiest bet of a technology company in a single project to date.

Facebook stated in your 2020 fiscal results that had invested close to $ 18.5 billion in research and development (R&D) that year, a good part of them 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 in R&D for projects that end up in nothing. Without going further, in 2020 Amazon allocated almost 43,000 million dollars for this purpose in research related to artificial intelligence, the machine learning and artificial vision, while Alphabet spent some 27,500 million dollars for this same purpose, mainly on artificial intelligence and new software and devices, according to Nasqad information.

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 monetarily in research and development in 2020, the percentage was already in that year 21% of its turnover.

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 Meta’s research and development investment could reach $ 28.5 billion in 2021.

That amount, according to Facebook’s annual balance sheet in 2020, would be invest around 30% of its income in R&D, especially in its metaverse project through Facebook Reality Labs. However, if the quarterly turnover figures that Zuckerberg’s company has been presenting throughout 2021 are maintained in the last three months of the year, that percentage would be actually 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 bulky 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 money, in 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, he plays almost everything on a single card which, while 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 it could move around 800,000 million dollars a year by 2024. But they are just that, projections that may well not be fulfilled.

Zuckerberg, however, seems to have blind faith in those estimates and in the internal market research that Facebook must have done on the economic possibilities 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 you – according to 2020 data. Facebook has money to burn in spades, 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 internal document leaks which, 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 They 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 as received by 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, into a hard economic blow for the tech 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 predicted by Zuckerberg.