There is no denying that the world is becoming more digitalized, and it’s highly likely that the metaverse may be the future. But this does not imply that Facebook’s parent Meta (NASDAQ:META) will become the leader in this new market.
For starters, despite Meta being one of only a handful of major conglomerates competing in the VR headset market, the company failed to capitalize on its early mover advantage. Apart from Sony’s (NYSE:SONY) PlayStation VR headset, there haven’t been any significant competitors, resulting in Meta capturing over 90% of the market share. Leveraging its massive war chest and Oculus’ acquisition back in 2014, Meta has made massive investments in R&D while subsidizing its hardware to increase its market share. But still, Meta has failed to emerge as the clear winner.
Meta’s Reality Lab revenue accounted for roughly 1.57% of the company’s gross revenue, according to its Q2 earnings results. For the first of the year, the unit brought in $1.137 billion, a 36.7% increase compared to the similar period last year. However, losses grew equally fast, increasing 35.4% to $5.766 billion from $4.259 billion. This massive loss was recorded despite Meta having an 80% market share. Even after spending billions on the Reality Labs business, revenue growth ended up matching the growth of losses.
What’s worse for Meta is that major rivals like Apple and Samsung, with equally deep pockets, massive fan bases, and influence, are likely to enter the VR market. For instance, in March this year, Samsung CEO Han Jong-Hee hinted that the company was developing an extended reality (XR) device which offers a mix of VR and AR. The announcement follows Samsung’s earlier attempts in 2015 and 2017.
On the other hand, Apple has been keeping things under wraps. While the company rarely announces that a new product is being developed, there have been numerous rumors from analysts suggesting the company is also working on something for the market. According to people with inside knowledge, Apple is working on at least three VR and AR products.
Whether it is true or not that Apple or Samsung are gearing up to launch a VR/AR/XR product in the future, one thing remains clear. These companies won’t sit idly and watch Meta attempt to dominate the metaverse market if they believe that the metaverse will be the future. Considering Apple and Samsung’s experience in the smartphone market, ecosystem, and robust fanbase Meta’s dominance isn’t likely to hold up for too long.
The main question investors should be asking is this. If heavily subsidizing their hardware, an early mover advantage, and billions in investment failed to bring Meta’s VR headset to the mainstream, how would it compete with Apple and Samsung?
Metaverse: No Turning Back
With roughly $20 billion in cumulative losses since 2020 from the reality Labs division, there is clearly no turning back. Meta is doubling down on its investment and the metaverse and doesn’t have a choice because of its slowing social media business. Currently, the metaverse is likely the only new avenue of growth for the company.
Meta’s Q2 revenue declined by 1% year over year due to the company’s slowing growth and reduction in price per advertisement. The company’s daily active users and monthly active users increased 4% year over year. The slowing growth and potential decline in its user base is likely not a one-time occurrence.
TikTok has been grabbing Facebook and Instagram market share, more so among the younger generation, which poses a significant risk for Meta. Furthermore, Meta’s ad price declining by 14% year over year doesn’t appear to be a temporary situation. That is because of Apple’s revamped privacy policy and Alphabet taking a similar stand.
Featured Image- Megapixl @Denisismagilov
