Zuckerberg’s metaverse rush pauses for ‘quality lockdown’

Zuckerberg’s metaverse rush pauses for ‘quality lockdown’

In early September, Mark Zuckerberg rushed to a Meta lab in Pittsburgh, sat before more than 100 high-resolution cameras and prepared to prove his metaverse critics wrong.

The photo shoot was designed to generate a more realistic avatar in the Meta chief executive’s likeness, as the social media giant scrambled to demonstrate that its $10bn a year bet on a futuristic 3D digital world known as the metaverse was not a flop.

In the weeks before, the Facebook founder had faced public ridicule after an earlier cartoon-like avatar selfie went viral for all the wrong reasons.

That rudimentary image was widely derived as “cringe” and “soulless”, piling pressure on Zuckerberg to prove he had not wildly misjudged staking his company’s future on a metaverse vision that had already racked up more than $27bn in operating losses over the past three years.

But the selfie episode is just one hurdle facing Zuckerberg, who believes the metaverse is the next natural evolution in online socializing and is expected to unveil the new avatar as soon as next week.

According to memos and conversations with 10 current and former employees, his 3bn user-strong social media empire is experiencing disruption and challenges as part of the pivot to Meta, and has already been forced to delay future launches and adjust expectations.

In a September memo seen by the Financial Times, Vishal Shah, the vice-president of Meta’s metaverse arm, warned that users and creators had complained that Horizon Worlds — its social virtual reality experience and the closest thing it has to a metaverse so far — was low quality and full of bugs.

I have ordered a “quality lockdown” for the rest of the year, telling staff that they need to improve fundamentals before any aggressive expansion. Staffers working on the product had to “reprioritise or slow some things we had planned”, said Shah, adding that he was lowering its user target numbers for the second half of the year.

Mark Zuckerberg faced ridicule for his rudimentary avatar selfie for the metaverse, which was described as ‘cringe’ and ‘soulless’

Some employees warned morale was suffering as teams got restructured to accommodate Zuckerberg’s new vision, which many have not yet bought into. “There are a lot of people internally who have never put on a [virtual reality] headset,” said one metaverse employee.

Meta said in a statement the company was “confident that the metaverse is the future of computing and that it should be built around people”. It added: “Of course we are always making quality improvements and acting on the feedback from our community of creators. This is a multiyear journey, and we’re going to keep making what we build better.”

into the metaverse

It has been almost a year since Zuckerberg announced his Meta pivot. His plan was eventually to attract 1bn users and “hundreds of billions of dollars of digital commerce a day”, a move that would take between five and 10 years, he said.

Zuckerberg declared that from now on “we’re going to be metaverse first, not Facebook first”, relegating the social media network he founded in 2004 — and brings in the vast majority of its $118bn annual revenue today — to secondary status. Reality Labs, the division dedicated to the metaverse, would see a doubling of its workforce to 20,000 engineers.

Meta currently has more than 83,000 staff after rapidly expanding during the pandemic, and has poached augmented and virtual reality engineering talent from rivals Microsoft and Apple as it looks to beef up its metaverse team.

But the push into the metaverse comes as the group’s market valuation has plummeted from $1tn to less than $400bn over the past 14 months. The company faces several headwinds: a slump in digital advertising revenue, slowing user growth on its Facebook platform and rising competition from deep-pocketed, China-owned rival TikTok.

Last week, Zuckerberg announced a hiring freeze across most teams and belt tightening into 2023 given the tough macroeconomic backdrop. Staffers have also been ordered by Zuckerberg to work with “increased intensity” and a “sense of urgency”, according to a July memo.

Line chart of Meta share price ($) showing Facebook's bumpy ride into the metaverse

Analysts and employees said the coming years would determine whether its metaverse shift was the answer to these problems — new lines of revenue to capture the next generation of internet users, or a giant distraction sucking away resources and limiting the company’s ability to revive its legacy product and rebuild its ad infrastructure.

“The challenge is that they’re so metaverse focused that they’re not investing in the core product that is Facebook and Instagram. All of this is a side show from the real issue which is that Meta continues to get its clock cleaned by TikTok,” said Rich Greenfield, analyst at LightShed Partners.

I have added that the level of Meta’s investment in the metaverse was “worrisome” to investors. “The metaverse as Meta envisions it is not investable today. Nobody is buying Meta for the metaverse.”

big investment

Since the beginning of 2019, more than $27bn has been reported in operating losses for Reality Labs, Meta’s metaverse and virtual reality division.

According to people familiar with the situation, investments have been focused broadly on developing the hardware, such as virtual and augmented reality headsets, that can be used to log into the metaverse, alongside software for its 3D world and the underlying infrastructure needed to support the system.

As well as the avatars that will represent users in the metaverse, the company has been working on activities beyond simple socializing to give them something to do, from working out in virtual fitness programs to playing games and even venues for education.

At its last results in July, the company said it had $24bn worth of non-cancellable contractual commitments “primarily related to our investments in servers, network infrastructure, and consumer hardware products in Reality Labs”.

Meanwhile, revenues from the division, coming largely from VR headset sales, remain meagre, partly down to the fact the entire VR industry has developed slower than anticipated. In the second quarter, Reality Labs accounted for $452mn out of $28bn in total revenues, and the company warned that it expected Reality Labs revenue in the coming quarter to be even lower.

“It’s a huge gamble,” said one advertising executive. “If you get the timeline wrong [too early] for 10 years then the company is really in jeopardy given how capital intensive this is.”

The recent restructuring and ditching of various projects in order to prioritize the metaverse has knocked morale, according to multiple current and former staffers, with some reporting an unhelpful division between the staff focused on the metaverse and those in the legacy part of the business.

Devon Copley, chief executive of Avatour, a virtual meeting company, said Meta was “leading the industry” when it came to developing the hardware.

However he warned the company was challenged more in developing software for the metaverse.

“The problem is the fragmented nature of the different software product teams and initiatives within the Meta org,” he said, citing the constant reorganizations, “frequent changes of direction” and lack of a “coherent vision” for a social network that incorporates virtual and augmented reality.

Already, the company is struggling to impress creators who develop social experiences in the metaverse. According to a Meta memo shared by one person on their Facebook profile, creators complained at a roundtable last month that Horizon Worlds was “unstable and unreliable” and that Meta staff did not give them updates when they reported bugs, or ahead of launches.

Employees “don’t communicate well or it could be understaffing and things falling through the cracks”, said one metaverse employee.

In Shah’s memo, which was first reported by The Verge, the Meta executive said the Horizon Worlds team had intentionally pivoted to “shipping faster” but that this had led staffers to “trade off quality for the sake of speed”.

Bugs and stability issues were so bad, Shah noted, that Meta’s own employees were not even using the product.

He added: “The simple truth is, if we don’t love it, how can we expect our users to love it?”