Meta is in trouble. Despite declining enthusiasm about the metaverse, it now wants to pump most of its funds into the project that it considers the future of internet services. And it had to sacrifice thousands of livelihoods to keep its dream alive.
It hasn’t been a great year for Meta CEO Mark Zuckerberg. Meta stock was flying high during the pandemic and reached its peak on September 7, 2021, bumping Zuckerberg’s fortune to $136.4 billion. Since then, Meta’s stock price has cratered by 74% and Zuckerberg has lost $100 billion, nearly three-fourths of his fortune at its peak.
“I’m currently in the middle of a thorough review of our infrastructure spending. As we build our AI infrastructure, we’re focused on becoming even more efficient with our capacity. Our infrastructure will continue to be an important advantage for Meta, and I believe we can achieve this while spending less,” said Zuckerberg on Wednesday as he explained why the firm was laying off more than 11,000 employees globally, who constituted 13% of the workforce.
Was it the main reason for the layoffs? According to the head of the social giant, the main reason he outlined was lower revenues which were triggered by online commerce and macroeconomic downturn, increased competition and ads signal loss.
“At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I decided to significantly increase our investments. Unfortunately, this did not play out the way I expected. I got this wrong, and I take responsibility for that,” the Meta boss said.
Partnership research by Mastercard, the International Monetary Fund (IMF) and Harvard Business School, showed that on average, the online share of total spending rose sharply from 10.3 percent in 2019 to 14.9 percent at the peak of the pandemic, but then fell to 12.2 percent in 2021.
“Fundamentally, we’re making all these changes for two reasons: our revenue outlook is lower than we expected at the beginning of this year, and we want to make sure we’re operating efficiently across both Family of Apps and Reality Labs,” added Zuckerberg.
Mr Zuckerberg firmly said the company was shifting its focus to three main areas which are: Artificial Intelligence (AI) discovery engine, ads and business platforms and their long-term vision for the metaverse.
“We’re leading in developing the technology to define the future of social connection and the next computing platform. We do historically important work. I’m confident that if we work efficiently, we’ll come out of this downturn stronger and more resilient than ever,” he said.
Meta started heavily focusing on AI in 2013. Some of the first successes were Facebook’s AI-powered text analysis tool to recognize posts that focus on charitable, offering people the option to add a simple donate button.
Also, Facebook has an automated assistant powered by AI to help make it easier to buy and sell items on the Marketplace. Furthermore, Meta powers nearly 6 billion language translations daily.
But on October 28, 2021, Mr Zuckerberg rebranded Facebook to Meta, a social technology company that owns Facebook, Messenger, WhatsApp, Instagram and Meta Horizon.
Another futuristic platform by Meta is the Metaverse project, which has consumed about $15 billion since 2021, well above the $10 billion annual figure the company had previously given. Moreover, the losses will “grow significantly” next year. It now appears that he laid off staff so he can afford to run what he believes is the future of the internet – the metaverse – without any financial strain.
The firm describes Metaverse as a set of interconnected digital spaces that lets you do things you can’t do in the physical world.
“Importantly, it’ll be characterized by the social presence, the feeling that you’re right there with another person, no matter where in the world you happen to be,” a statement by Meta reads.
The firm is continuing to pour billions into the project arguing that it’s the future of computing.
According to Meta, metaverse will revolutionize social connection, to entertainment, gaming, fitness, work, education and commerce fuelled by its Presence Platform, the company’s suite of machine perception and AI capabilities that empowers developers to build mixed reality (MR) and natural interactions-based experiences.
On Wednesday, Meta Platforms said it brought in $27.7 billion during the third quarter of 2022, over 4 percent less than the $29.01 billion the company brought in during the same period last year.
Mr Zuckerberg noted that next year, the company expects operating losses for Reality Labs, the division that works on its virtual- and augmented-reality-powered services, to grow “significantly year-over-year.”
So far, the firm has reported a loss of more than $5 billion in the first six months of 2022 and many analysts foresee more losses in the future.
Earlier this month, Wall Street Journal report indicated that Horizon Worlds, Meta’s new virtual space, trimmed its goal for monthly active users to 280,000 from 500,000, but the space is attracting fewer than 200,000 users.
Regarding the mass layoffs, Mr Zuckerberg said Meta will now operate as a streamlined organization to achieve its priorities.
Other than the job cuts, the company will also reduce office space, lower discretionary spending and extend a hiring freeze.
“Today I’m sharing some of the most difficult changes we’ve made in Meta’s history. I’ve decided to reduce the size of our team by about 13% and let more than 11,000 of our talented employees go. We are also taking a number of additional steps to become a leaner and more efficient company by cutting discretionary spending and extending our hiring freeze through Q1,” Mr Zuckeberg said.
However, Mr Zuckerberg noted that the sacked employees will get 16 weeks of base pay and two weeks for every year of service as severance. They will also receive health insurance for six months.
Meta had 87,314 employees as of the end of September. Also, the firm noted it will roll out more cost-cutting changes in the coming months.
The job cuts in Meta follow layoffs at other major tech companies including Elon Musk-owned Twitter and Microsoft which sent home over half of the company’s workforce last week; Snap which owns Snapchat fired a fifth of its staff.
The WSJ reported that meta’s flagship product, Horizon Worlds, is falling short of expectations. But while most projects are rather blasé and often only have cool, sexy trailers that entice gamers to get involved early, there is still the belief that virtual worlds like those portrayed in science fiction will become a reality.
Beyond the losses in its metaverse unit, Meta is facing fierce competition from TikTok for ad dollars—the source of the majority of its revenue—as well as a broader advertiser pullback amid concerns about an impending recession. Adding to its advertising woes, the social network is still reeling from privacy changes made by Apple last year that make it harder for tech companies to track users across apps, which has cut into its ad revenue.