Monday, December 5, 2022

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    Tech investor tells Meta its $100bn metaverse spend is 'super-sized and terrifying'

    Meta’s focus on becoming a leading force in the nascent metaverse has begun to make at least one of its investors uneasy. Here are his suggestions for helping the tech giant ‘get its mojo back.’

    In an open letter published earlier today, Brad Gerstner — founder and chief executive of technology investment firm Altimeter Capital — stated that “Meta has drifted into the land of excess — too many people, too many ideas, too little urgency.” 

    The letter, addressed to Mark Zuckerberg and Meta’s board of directors, pointed out Meta’s “startling” financial decline over the past 18 months, which according to Gerstner has included the company’s stock price dropping by 55%. “And notably, this decline in share price mirrors the lost confidence in the company, not just the bad mood of the market,” Gerstner wrote.  

    He suggests a three-point plan to help Meta “get its mojo back”: (1) cut employee-related expenses by at least 20% by January 1, (2) reduce capital expenses by $5bn, and (3) cap metaverse-related expenditures to $5bn per year. 

    Rather than investing more substantially in artificial intelligence (AI) research, which Gerstner seems to think would be worthwhile, “the company has announced investments of $10–15B per year into a metaverse project … that it may take 10 years to yield results. An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards.”

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    Since changing Facebook’s name to Meta in October 2021, Zuckerberg has repeatedly told investors that the company’s ambitions to pivot to the metaverse was going to cost it a lot in the short term. His bet up to this point has been that investors would be willing to go along for the ride on the promise that their patience would ultimately pay off, when the metaverse becomes mainstream.

    So far, many people don’t seem nearly as excited by the prospect of Meta’s vision for the metaverse as Zuckerberg has been hoping. The graphics in Horizon Worlds are routinely mocked on social media. And the company’s new virtual reality headset, unveiled to much fanfare during its annual Connect conference earlier this month, costs $1,500 – much more than the average person is likely to be willing to spend.

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    Patience required for ‘jumping the curve’

    Some are preaching patience during Meta’s big reset. “While Meta has to keep innovating with Insta to challenge TikTok, they also have to look at the next five years and plan how they will ‘jump the curve’ to lead in the next wave of change, rather than wait to be out-innovated again,” says Sean MacPhedran of SCS.

    Meta has already pushed past the current crop of AI Art generators with a quietly teased AI Video creator called Make-A-Video, says MacPhedran. “They’ve also no doubt been investing into AR technologies we haven’t seen yet … There’s a high likelihood that, once the technology is compact enough, perhaps in 5-10 years, AR/VR glasses will regularly replace or augment smartphones and laptops depending on the use case. That’s probably why it’s no secret that Apple is working on their own device. For today’s tech, we haven’t seen the ‘must have’ VR device or app yet, but Xbox Game Pass is launching on Quest 2 soon, and that will be amazing for gamers.”

    Gerstner concluded his letter with a focus on AI. “We don’t have any demands … We simply wanted to further engage and continue sharing our thoughts as an interested shareholder. We believe in this team. We know Meta has more reach, more relevance, and more incredible opportunities for growth than almost any platform on the planet. And we are confident that your long-term investments in AI and the next generation of communications will continue to drive us all forward.”

    Meta reportedly announced earlier this month that it’s rolling back its expansion plans in New York City and planning its first-ever major budget cut. 

    Meta has not yet responded to a request for comment. 

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