Meta (Facebook) – All-in on Meta.

Zuckerberg bets his company on the Metaverse.

• Mark Zuckerberg is betting his company on the Metaverse, and while it is making the right noises, it is clear that this was his decision and his decision alone.
• This highlights one of the key risks of companies where founders have control through super-voting share distributions because if this turns out to be a colossal and cripplingly expensive mistake, no one else can do anything to stop it.
• However, on this occasion, I think that Mark Zuckerberg is on the right track for where his company needs to go over the next 20 years and he is spending big to ensure that lack of resources is not a problem.
• Hence, it all comes down to execution and while Meta can talk the talk, it remains to be seen whether it can walk the walk because the problems to be solved are huge.
• The biggest problem is not hardware (although this is a very big problem) but interoperability.
• For the Metaverse to work it needs to be like the Internet which uses universal standards such as TCP and IPv4 and IPv6 meaning that every device and everyone can easily get access to it.
• If the Metaverse becomes a series of silos or walled gardens that do not merge, then it is going to fail.
• The user needs to be able to jump from Meta’s Horizon suite of services straight into Microsoft Mesh or whatever Apple comes up with and take their avatars and digital possessions with them.
• The hardware problems are engineering problems and will be fixed, but interoperability requires companies to overcome their own self-interest and those of their shareholders and go for openness and interoperability.
• The industry’s record on this is not great and Zuckerberg never missed an opportunity to ding Apple and Google for their “expensive and restrictive” practices on smartphones.
• I think that this is the stumbling block that will ensure that the Metaverse takes longer to really take off because at least initially, its going to be based on closed standards and systems.
• This is because open standards are not very good when it comes to building new technology because they often place limitations on what can be done making solving the problems more difficult.
• Historically, engineers solve these problems the best way that they can and then worry about interoperability and patent infringements further down the road.
• This is why first-mover could be a real advantage.
• By getting there first, one may be able to attract users and developers first and generate the flywheel effect where users attract developers and vice versa.
• In this instance, if one can become very big early on, then one becomes a de-facto standard despite one’s system being built on proprietary standards.
• This is exactly how Apple did it with iOS.
• This is precisely where I think Meta is going to go but if we take Zuckerberg at his word, he is going to ensure that everyone and everything can freely and cheaply plug into his version of the Metaverse.
• This of course is the key stumbling block as right now Meta’s reputation is in the mud and no amount of name and brand changes is going to make that immediately go away.
• Hence, many either won’t want to trust Zuckerberg or they will want to build a Metaverse empire all of their own leading to the inevitable silos problem highlighted above.
• To be fair, I think Zuckerberg is genuine in his intention to ensure that Meta’s Metaverse is open and accessible, but it remains to be seen if the cash-generating part of the company will have the vision to cede value in the short-term for greater returns in the long-term.
• All companies have a great deal of difficulty in doing this and I suspect that Meta will be no different.
• However, I think that at the moment Facebook has a head start in the race to the Metaverse as the VR ecosystem that surrounds Oculus is expanding nicely thanks to the success of the Oculus Quest 2.
• This has appeared as a rounding error in Meta’s accounts to date, but the device continues to sell well and creators are generating revenues on the platform.
• However, it is not going to remain a rounding error for long as Meta’s adventure into the Metaverse will be split out as a separate unit from Q4 2021 and it has already warned that investments will be $10bn a year going forward.
• Furthermore, Meta’s PR problems are not going away and both the media and regulators now seem determined to take the company down a notch or two.
• Hence, I can see the stock being under pressure for a while as these issues work themselves out but once completed, this will be one of the cheapest ways to play the Metaverse theme.
• Hence, I am looking for a good entry point before taking the plunge on the Metaverse.