Why Meta Will Never Own The Metaverse

Undefined use cases and low enthusiasm stand in the way

The year is 2025, you log on to your board meeting and see limbless avatars around the table sort of like…

Mark Zuckerberg’s avatar, Meta Horizon Worlds platform.

This screen grab is Meta’s Horizon Worlds metaverse, and that avatar is Mark Zuckerberg. Apparently, $10 billion buys your company a graphics flop so bad that those of us who grew up in the mid-2000s will think Wii is making a comeback.

As underwhelming as the graphics look, though, they aren’t the main problem. The metaverse games of Roblox, Minecraft, and Fortnite have graphics that look cartoon-like in a design choice central to those brands. Millions of (mostly Gen Z) gamers play those titles every day. So far, metaverse gaming is a proven market segment with consistent demand and daily active users. Earlier this year, Fortnite creator Epic Games raised $2 billion to build a kid-friendly metaverse in collaboration with LEGO group. If you’re a Gen Z gamer, particularly in your teens, you’re all in.

But gaming itself falls short of a ubiquitous metaverse that consumers interact with daily, as they do smartphones. As I will explain later, barriers to access, demographic trends, and undefined use cases impede the metaverse from reaching saturation. Furthermore, no company has solved the problem of bringing high fidelity graphics to everyday VR applications—a critical step in turning the metaverse from sideshow to compelling product offering.

Why is Mark Zuckerberg all-in on the metaverse?

Facebook was founded as a social media company. Though it went on to occupy a spot among “Big Tech” writ large and underwent a name change last year, Meta is still fundamentally a social media company. That presents problems for Meta that other Big Tech juggernauts like Apple, Google, and Microsoft do not share.

To access Facebook, Messenger, Instagram, or WhatsApp, you need a physical device from likely Apple, Google, or Microsoft. The latter three companies and their peers developed generative technologies, while Meta was just a collection of platforms.

What is generative technology and why is it important? The term was coined by Harvard Law Professor Jonathan Zittrain in 2006 to describe the internet:

“Generativity reflects the ability of digital technologies to facilitate unprompted innovative input from large, diverse, and uncoordinated audiences. It is characterized by the ability of digital technologies to produce a disproportionally greater output compared to the input (leverage), the ease with which they can be modified to broaden the range of their functionalities (adaptability), the ease with which people adopt and use a digital technology (ease of mastery), and the ease with which they can come to use and control them (accessibility).”

In short, a generative technology has the capacity for a diverse network of users to innovate and develop new use cases without any gatekeeping. Smartphones, app stores, PCs… but not, unfortunately for Mark Zuckerberg, a social media site. Meta continues to lose billions per year in ad revenue because Apple changed a policy that allowed users to opt out of app tracking.

Therein lies the reason Zuckerberg is so focused on the metaverse. Meta’s core business is selling users’ attention to advertisers on platforms with stagnating user growth. Facebook and Instagram reached a level of market domination that will prove hard to replicate in a more fragmented metaverse ecosystem.

There is a version of the future where the metaverse and its associated devices and technologies are a paradigm shift rivaling the launch of the iPhone in 2007. Zuckerberg is hedging that risk and positioning Meta at the center. Or at least that’s the goal.

The Problem: Clunky Headsets and Low Enthusiasm

Meta sells the Quest 2 headset as their premier VR option. For smart glasses, and likely future augmented reality (AR) applications, they offer Ray Ban Stories—glasses with a built in camera and headphones to capture moments in real time (major privacy concerns here, but that’s a whole other post).

Simply put, VR is demanding. You need to buy an unreasonably large headset that requires compatible applications, and that’s assuming you had initial interest at all. In fact, 75% of adults, including 62% and 66% of Gen Z and Millennials respectively, indicated a lack of interest as a reason they do not own a VR headset.

At this point, Meta has likely sold in excess of 10 million units of the Quest 2, but on earnings calls you won’t hear them discuss Quest sales as a success metric. Active users are how companies like Meta judge success, and they are likely far lower than total sales. Data collected as part of Piper Sandler’s Gen Z research project showed that just 9% were interested in the metaverse to the point of making a VR headset purchase, and 26% already own a device. Of that 26%, however, only 5% entered the metaverse daily, and 82% less than a few times per month. The prospect of an exciting new product collecting dust in a bedroom closet isn’t the image Meta wants to draw, but it’s currently the reality.

Compounding Meta’s headset problem, in a survey by Morning Consult, only 36% of adults expressed interest in using the metaverse in any form. Slightly less indicated interest in Meta’s offerings specifically. Of Gen Z, the numbers are slightly better but still less than 50% is interested in Meta’s Horizon Worlds or their business offshoot Horizon Workrooms.

Solve for the cool factor, and you’re left hoping consumers are interested in the first place.

Final Thoughts

Consumers, particularly Gen Z, aren’t buying the metaverse so much as they are buying parts of the metaverse. No one will argue that metaverse gaming can’t survive on its own. More than two-thirds of Gen Z identify as gamers, a share poised to expand. You can expect that as a critical mass of gamers purchase VR headsets, gaming studios will begin to roll out more VR-enabled titles.

As far as a metaverse ecosystem that permeates our daily lives? It’s unknowable what that will look like or when it will occur. VR gaming is fun, shopping applications will likely be among the earliest to go mainstream, and we already see the Web3 overlap. However, broad adoption still hinges on seamless and intuitive user interfaces on hardware as sleek as an iPhone. And in a world where your boss can’t seem to work the mute button with 100% success, metaverse boardroom meetings remain a comical prospect not expected anytime soon. The undeniable “cool and fun” factor versus true utility is a tradeoff consumers will weigh for the foreseeable future.

Meta has competition, too. Apple is currently building their own metaverse product suite, with a focus on augmented reality. Their first headset is rumored for launch in January 2023. The two tech giants will compete for years to come over differing philosophies on the next generation of the internet.

Mark Zuckerberg’s current focus is on hardware iteration and saturating the market. Meta intentionally sells headsets near cost simply to get them into consumer hands. He recently told employees:

“Our north star is can we get a billion people into the metaverse doing hundreds of dollars a piece in digital commerce by the end of the decade? If we do that, we’ll build a business that is as big as our current ad business within this decade.”

Can Apple create a closed ecosystem and duplicate their successes in the mobile device market, or will Meta’s vision for an open and interoperable metaverse ultimately win?

There won’t be one metaverse that rises to prominence in the same way Facebook and Instagram have dominated the social media realm. Given the patchwork of companies building for the metaverse, Meta faces an (expensive and years-long) uphill battle before Horizon Worlds or any product of theirs tops the market.

Lowering the barriers to entry is a start, and “cool” products are on the way. But will that be enough?

My hunch says you won’t entice a billion people with limbless avatars.

—

Have thoughts? Agree or disagree? Reply to this email or leave a comment!

Cheers,

Ryan