Mark Zuckerberg is moving all in on the metaverse, but he should focus on other things again.
Meta’s CEO should prioritize increasing engagement and revenue on the company’s core apps.
Meta reports next week’s third quarter earnings and analysts have called it a “decisive quarter”.
Meta, the company formerly known as Facebook, is expected to start focusing on creating Facebook Facebook still.
Over the past year, CEO Mark Zuckerberg has focused on his passion project: the metaverse. It’s a squishy concept that can describe a number of things, but in the broadest sense it’s the idea that people connect to each other through virtual worlds rather than a traditional social network.
But as I wrote recently, Meta’s big pivot in the metaverse was a disaster, with little to prove other than a mediocre experience, increasingly expensive headphones, and his stock plummeting more than 60% this year.
Zuckerberg should instead cut that down and prioritize strengthening his company’s core apps, Facebook, Instagram, and WhatsApp, which felt largely neglected as Meta poured in $ 15 billion into its metaverse project.
By staring at the barrel of a potential recession, Meta is expected to increase engagement and revenue for those apps, which have billions of users around the world. Meanwhile, Horizon Worlds, Meta’s leading metaverse app, has just 200,000 monthly active users, the Wall Street Journal recently reported.
Notably, even though Instagram recently faced headwinds, it’s still Meta’s crown jewel. Keeping users happy on the app and plotting a plan for years to come should be the company’s # 1 priority. Meta said in its second quarter earnings that Reels was growing and accounted for 20% of the time people spend on Instagram.
Instead of angering users by trying to make Instagram more of a TikTok clone, Meta should devote time and energy to thread the needle to monetize that usage as much as possible without turning people off.
It should also try to do the same with WhatsApp, the most popular communication app in the world. The platform does not include advertising, in an attempt to keep its identity as an intuitive service first and foremost. But Meta has vowed to capitalize on its popularity in other ways to increase revenue, even with paid features.
Yet, instead of focusing on its proven apps, Meta is investing billions of dollars in an idea that will can be see five or ten year earnings across the board.
Left unchecked, a bet of this magnitude risks alienating investors – and staff – as they face unstable economic waters.
Zuckerberg will show us his report card later this week
Meta reports its third quarter earnings next week and Wall Street has already been scared. Analyst Neil Campling called a recent presentation of Zuckerberg’s metaverse “desperate” and said that “no wonder investors are desperate.”
Investment firm Bernstein called it a “hit or break quarter” in a recent note and said engagement numbers will be “critical” for the company this quarter.
“We believe that if Meta does not provide incremental information on the call suggesting that aggregate involvement in its app family is stable, the bear case will only get stronger,” Bernstein analysts wrote.
Analysts believe a turnaround is possible by the end of the year and into 2023 if Meta, among other things, increases the ad load on its TikTok-like video product, Reels.
Meta’s revenue declined in the second quarter, the first time in the decade the company went public. Zuckerberg blamed an “economic downturn” that was impacting the digital advertising business.
Apple was a key part of the problem. Last year, the tech giant introduced an iOS privacy change that asked users if they wanted to opt out of tracking in other companies’ apps. Meta responded at the time by saying that advertisers “may see an overall decrease in ad performance and personalization and an increase in cost per action.”
Seeking to escape a future scenario where Apple is a dominant force that can thwart its business with a single software hit, Zuckerberg is trying to invent the next future platform.
But incumbents rarely create the next big platform, which is why Zuckerberg’s vision of the metaverse seems more suited to a VC-backed startup than an enterprise-level battle cry.
Apple has also explored future platforms, but much more quietly than Meta (its VR headset will be available soon). But the company hasn’t been punished for it by Wall Street, because it’s still focused on growing its core business sectors, unlike Meta.
That didn’t stop Zuckerberg from pushing his metaverse into a Meta vs. Apple, so he’s clearly taking up some head space.
“This is a competition of philosophies and ideas, where they believe that doing everything by themselves and integrating tightly can build a better consumer experience,” Zuckerberg said of Apple’s strategy in an all-cost meeting this year with employees, according to The Verge.
But maybe Zuckerberg should take a page from Apple’s book, prioritize proven cash cows to please investors, and relegate the metaverse stuff to the garage where the moonshot projects belong.
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