Meta's AI First Strategy

0:00Over the last half of a decade, Meta has made an absolutely colossal investment into the quote unquote metaverse and it might finally be coming to an end as meta is starting to focus more on AI. and growth there and it feels like the metaverse was a dream of zuckerberg's that never really materialized all of this has happened as roughly 1500 employees from the reality labs division are being laid off over at facebook and there's a whole bunch of vr game studios that are getting shut down according to a report over in the wall street journal this is kind of like a dramatic moment i think for meta which was just you know four years ago rebuilding its entire identity around the metaverse and everything going on there.

0:40So today on the podcast, I want to break down where we are today, where we've come from, and how we arrived at this moment. What's next? Because I think what's next is even more exciting than getting lost in the metaverse for endless hours at a time. And I think it's probably a more optimistic view of the future. But spoiler alert, it includes a lot of technology still being involved. So let's get into the podcast today. Before we do, if you want to be able to build tools, if you're not a developer, I'm not a developer, I built a platform called AIbox.ai where you can vibe code AI tools. You explain what you want to build and our builder will automatically link together multiple AI models, put in prompts and build a tool for you.

1:16So it automates the whole automation. You can then go use those and share those. If you want to check it out, it's linked in the description. It is AIbox.ai. All right, let's get into the podcast. The first thing I want to say is I don't think there's a lot of people crying right now over the metaverse, feeling like it is collapsing essentially. Back in 2021, Facebook rebranded themselves as Meta and they said, you know, there's going to be this new era of virtual reality. It was definitely a big shift from basically focusing themselves on social media. They're kind of like a new company. It was like a big new marketing thing.

1:50Part of the strategy hinged on they kind of had this belief that Gen Z was going to prefer to socialize inside of online games like Fortnite and Roblox instead of on sort of feed based apps like Instagram. so of course they did this big name change thing and also this the name change had another purpose which basically was to distance them from they had a lot of years of reputational damage tied to facebook so at that point the brand was kind of they had the whole cambridge analytica data scandal and there's a bunch of like internal documents and whistleblower things that were basically just making facebook's brand not as good and in how you know there's a bunch of whistleblowers and how it was harming teens and children and there's all these like congressional hearings over surveillance and misinformation and then allegations of them being a monopoly and then allegations of censorship.

2:37And then, you know, like there's just so much drama with the whole Facebook thing. So rebrand, call it meta. And they're just like, look, here's our new vision. We're going to build the metaverse. It's going to become the next great social platform. It's going to be, you know, a virtual world. Users are going to gather. They had Horizon Worlds was kind of the main app or hub where they did that. And they, you know, where they said like everyone's gonna play and work and socialize using Meta's VR headsets. Okay, awesome. And to be fair, I purchased a Meta VR headset and played some games on there over a Christmas break, you know, between Christmas and New Year's.

3:07It was kind of fun. Then it sat in my closet and I never used it for a couple of years. So I think that was probably the experience a lot of people had. It's kind of a novelty. It was kind of fun. Also kind of gave you a headache and you kind of just moved on. So I think because of that, the vision today of this huge metaverse. I mean, they were spending, you know,$10 billion, over$10 billion, I think, a quarter or a year, like just absolutely astronomical amounts of money on this. So according to CNBC, they've now made a whole bunch of cuts, over 1500 people have been let go. And this is hitting a whole bunch of internal studios.

3:42So there's Amateur Studios, which was working on Resident Evil 4 VR, there's Twisted Pixel, which is kind of known for Marvel's Deadpool VR. There's Sanzaru, who's the creative of Asgard's Wrath, the VR fitness app Supernatural, which personally was one of my favorite when I had a VR headset. It was actually acquired by Meta in 2023 for about$400 million, but they're going to stop producing any new content and they're just going to shift into maintenance mode. So Camouflage, who's the studio behind Batman Arkham Shadow, has also seen a bunch of layoffs according to GeekWire. So I think the verge also reported that workrooms which is meta's attempt to bring you know vr into the workspace is also shutting down as well i basically think all of these are not great signs for uh zuckerberg's metaverse and bloomberg already did a report back in december that said that meta was planning to cut the vr division's budget by as much as 30 at the same time they're gonna they were pausing efforts to license their meta horizons operating system to any third-party headset makers which was a part of like kind of an ambitious plan they had a little while ago so the real question is what is the damage altogether meta has put about 73 billion dollars into the division and i think to put that into perspective you need to spend about a million dollars every single day for 200 years if you want to reach that amount of money so that is not insignificant that is pretty basically pretty massively uh colossal of a failure i think beyond the hype If you're looking from like analysts and investors, a lot of the early versions of the metaverse were really bad products.

5:20The avatars were super lifeless. They were super awkward. They famously didn't have any legs. So there is one early Horizon World screenshot of Mark Zuckerberg's avatar, which was like went super viral because it just looked so horrible. He was saying like this was the future. And yeah, it was not great. So I think this kind of like building in the open strategy only works when consumers actually want the technology. if you're trying to build something and say, hey, everyone wants this, building to the open is probably not the right direction. In VR's case, I think demand never really materialized at scale.

5:52Meta definitely quickly captured the majority of the VR headset maker market with Oculus and the Quest device. The sales then steadily kind of went down. Counterpoint Research reported that global VR headset shipments fell 12 % year over year in 2024, making the third consecutive annual decline. Meta had about 77 % of those shipments. But I mean, it what they obviously had a product interesting enough that they scammed Apple into getting into the market and building the into building their own VR headset. And Apple's headset also was a huge flop and didn't see very much demand or usage or I mean, honestly, someday that Apple VR headset is going to be like a collector's item, in my opinion.

6:32But I don't think that this is completely ruling out the entire industry. And I do think that there's some interesting plays here. I think Meta's long-term interest was never just hardware. They were a lot more focused on the economics of running their own platform, whether that was apps or games. And they're kind of looking at this as a way to escape from Apple and Google's grip on mobile app distribution. That was, I think, why they're putting so much money and really trying for this whole thing. During Facebook Connect back in 2021, Zuckerberg was openly criticizing the Apple-Google duopoly.

7:00He said that building under the rules had been really quote unquote humbling and that higher fees were stifling innovation. He said that he wanted the metaverse to reach a billion users within a decade and generate hundreds of billions of dollars in digital commerce. There's a bunch of consulting firms. I think McKinsey was one of them. There was some banks, Citi, all of those were saying like, yeah, we expect to see the same kind of thing. They were kind of forecasting these multi trillion dollar metaverse economies by 2030. It seems like they were maybe drinking the Kool-Aid a little bit too much because that we never even got close to that.

7:30I think Meta's kind of, they definitely had like a big dream, but the adoption was lagging really bad. So even though the company didn't disclose any kind of detailed metrics from its VR app store, mostly I think because this would make them look bad, the estimates give us kind of a rough idea. So Aptopia data suggests that Meta Horizon app has been downloaded about 60 million times globally since 2018. So that's about 40 million downloads in the US. I think they did see some growth in engagement. They had an average daily sessions per user, which was at like 3.49 % in early 2023. That went up to 4.9 % by January of 2026.

8:07So, you know, daily sessions per user did increase a bit. I think the company had more than 3.5 billion daily active users across Facebook, Instagram, and WhatsApp and Messenger. So I think basically like these numbers from Horizon Worlds are barely even registering compared to some of their other properties. Now, one thing that I do think is interesting is that if this whole strategy had worked, Meta was kind of hoping that they were going to create some of their early Facebook era success. They had like Zynga's games like Farmville and Words with Friends that had a ton of revenue. They were selling like virtual goods.

8:40This time, I think maybe part of the problem was that Mark was kind of saying that he wanted to get money from developers. He was talking about how he's going to extract revenue and all this kind of stuff. I think he did a little too soon. He probably should have waited and ramped it up. It's kind of funny because he was, you know, he criticized Apple and Google a lot and, you know, building under the duopoly is like so hard and I'm gonna make a better thing for developers. So, but the interesting thing is that instead of giving a better deal than Apple or Google, Meta actually charged a lot more.

9:07So even before the VR, their VR headsets had really achieved a lot of scale, they said that they were going to take 47.5 % of digital sales on Horizon Worlds, which is, you know, combining a 30 % platform fee with an additional 17 % cut. I think this is basically making it made a lot of creators pretty mad, but it's like very uninspiring. I, you know, my very first software startup was an app. And it was, you know, most popular over on the Apple App Store. And it was super annoying. We first launched, we're paying 30 % fee to Apple, then eventually, they had a new thing come out where we could apply, we got, we applied and got to only have to pay them 15 % until we hit our first million dollars.

9:46but regardless you know uninspiring and then zuckerberg comes we actually built a a vr headset app and you know 40 47.5 basically makes you not want to promote the app if i'm being honest if you have to give half of it away uh you just go find another platform especially because they're not driving that much growth so i think meta has repeated one of the most familiar mistakes which is i think that they prioritize growth um and they were kind of prioritizing making money over helping the platform grow and so i think while vr has struggled a lot they definitely it's not definitely like been a total dead end they've actually made a lot of other bets that have paid off which came out of their ai vr kind of division the number one that i talk about all the time is meta's ray-ban smart glasses these have been incredibly popular i know a ton of people that have them and they give you essentially the ability to without your hands go record stuff you can play music they have a whole bunch of ai powered features in some stores they They have outsold traditional Ray-Bans, apparently, in 2024.

10:46Bloomberg recently said that Meta was considering doubling production to meet demand for these. And they also have a deal with Oakley's. So there's more glasses brands kind of coming on board with this. Right now, they have pushed further kind of into some of their AI-powered wearables. And they're just basically to get the Meta AI out there more. There's obviously a lot more consumer interest, I think. Right now, we have OpenAI and Amazon and a lot of other people exploring hardware. And I think, honestly, because they were in the metaverse, they spent, you know, over$70 billion there. I think they were really well set up to kind of go and do these meta Ray-Bans.

11:20And I think they're actually beating out most of the other players. We've seen that Google has announced that they're going to be coming out with some glasses. And in the Google glasses, you're going to be able to have augmented reality. So maps will be projected on the lens of your glasses. And I think this is really cool because you have the stem of the glasses are right next to your ears where you can put a microphone. The front of the glasses, you can put a camera on them. And so you can have speakers, microphones, camera, and then augmented reality on the lenses to show you maybe if you're looking at maps, what direction to walk.

11:50And so overall, I think that these are actually an amazing form factor. You can talk to your glasses. It's something that people are used to wearing. And I think that Meta definitely got ahead of everybody else in this space because of, you know, all the money they were spending on the metaverse. So I think if you kind of look at everything together, the math doesn't really work. The metaverse wasn't getting enough users, developers, or any sort of sustainable economics. So AI, by contrast, is already becoming one of the core products on Meta. And so I think for Meta, killing the metaverse is kind of the obvious solution.

12:23the metaverse experiment it feels like is kind of coming to an end i think the future at least for now is going to be in ai where meta is going to focus the most and i actually think that they're going to be a really powerful player because of the meta ray-bans and because of some of the the programs they had in the past that have now sort of evolved to that as the final form factor so i think i would definitely not count meta out in this regard and i think it's their biggest competitive advantage when it comes to ai is kind of that hardware that has been successful so thank Thank you so much for tuning into the podcast.

12:52If this episode was interesting, make sure to leave a rating and review on the show on Spotify. It's the about tab on Apple. You can drop some stars, leave a comment. I read all of the comments and I really do appreciate all of the reviews. Sometimes there's great feedback in there. Sometimes there's good encouragement. But in any case, it really helps the show a ton. So if you appreciate the show, I really appreciate a review. Thanks so much for tuning in. As always, make sure to go check out AIbox.ai. We've released a whole bunch of new features this week. I'd love to hear what you think about them.

13:19you can get access to all of the different AI models and build a lot of cool AI tools, even if you're not a developer. AIbox.ai, there's a link in the description. All right, hope you guys all have an amazing rest of your day.