The past week or two have been a tumultuous time for social media, online and some software companies.
For many years these companies have grown at an unparalleled rate and became technology giants, strongholds of economic power, and pretty much recession-proof.
But economic times have changed since the Covid-19 pandemic and the Russian-Ukraine war. The market took a different view on technology companies, global competition increased, and inflation and interest rates are at high levels, which inevitably lead to the recently announced losses made by social media companies. This was followed by some drastic interventions and strategic decisions to appease stakeholders.
The ink of Elon Musk’s signature on the contract, making him the new owner and CEO of Twitter, was hardly dry when he announced just over a week ago that he would cut roughly half of Twitter’s 7 500 member workforce. He even closed Twitter’s only Africa office in Ghana, laying off all the staff, but one person. The cut was so severe internationally that over the weekend some workers were requested to return to work.
On Tuesday, two weeks ago, media reports surfaced that hundreds of layoffs were underway at Salesforce, the American cloud-based software company providing customer relationship management software. Similarly, the ride-hailing app Lyft’s financial services platform Stripe, and digital real estate marketplace Zillow, also cut staff.
However, the biggest shock came when Meta, the parent company of Facebook, announced on the ninth of November that it was cutting more than 11 000 jobs, or 13%, of its total workforce to curb expenses and transform its business into a much more competitive digital advertising market. Meta further placed a moratorium on the appointment of new employees until March 2023.
Meta decided to refocus on its previously lucrative advertising business, and to elevate content from viral creators and strangers over posts from friends and family. This makes good business sense since this is the strategy that made TikTok, the short-form video app, and Snapchat so successful and largely eroded Facebook’s advertising income.
This, however, does leave one very important question to be answered. Where does the much hyped metaverse fit into this new strategy? Just over a year ago Facebook changed its name to Meta to emphasise their focus on the metaverse. This focus on the metaverse led to a hiring-spree since people were needed to build the immersive digital realms to be accessed through virtual reality. During this time of expected unparalleled growth, Meta for instance grew its staff by 28% to 87 314 employees by September this year.
The metaverse has been touted by its CEO Mark Zuckerberg as the next great computing platform after mobile phones that will also replace some face-to-face communication. For many years Zuckerberg has stated that the metaverse will consist of virtual reality-powered services that will transform every aspect of people’s lives, such as work, school, leisure, family time, and many more.
Over the last few years Meta has spent large sums of money in developing state-of-the-art virtual reality headsets and related technologies. Just recently during October, Meta demonstrated the Quest Pro, a R26 700 virtual reality headset which according to them would transform the ability of remote workers to collaborate with colleagues while conducting their jobs in the metaverse.
In Zuckerberg’s vision of the future of work, workers will be able to travel seamlessly from their own digital work spaces to virtual offices, where they can meet, brainstorm and do creative work with their colleagues just like in the real world. The Quest 2 Pro can even track the wearers’ facial expressions and reflect those in their metaverse avatars, thus making it possible for people in disparate locations to see how the other is reacting in real time.
Although Meta may be the current market leader in the virtual reality space thanks to its Quest 2 virtual reality headset, Apple and ByteDance (the parent company of TikTok) are following closely in their footsteps and will soon be market forces to be reckoned with.
But the biggest problem is not the only the growing competition in the virtual reality headset market, but that the technology required to accomplish some of Meta’s biggest ambitions for its virtual reality devices is, according to Zuckerberg, still years away. And even if Meta succeeds to build an enticing metaverse, there is no guarantee that people will want to wear headsets and spend most of their time in a virtual world.
Zuckerberg has until now built his future on the metaverse. But Meta has taken a big gamble on building the metaverse at a cost of billions of dollars merely based on the belief that people in the future will want to congregate in a digital world with loved ones, friends and colleagues.
Before the perfect storm of an economic downturn, mobile advertising complications due to Apple’s privacy policies, increasing competition from TikTok, and major losses, Meta spent about R175 trillion on the metaverse this year alone.
However, the recent layoffs clearly speak to the issues that Meta has with its investment in the metaverse. Over the past few years Meta has been losing trillions of rand in this investment. Meta will certainly have to reconsider its business model for the metaverse, as well as the technological gaps that still need to be overcome in creating an immersive metaverse experience that is both compelling and affordable to the general populace.
To build the next communications platform is no easy feat – certainly not when virtual reality headsets are hugely expensive and content is still lacking. It seems as if the metaverse has got a long road ahead – even longer after the massive layoffs at Meta. Under the current economic conditions it seems that the “holy grail” of social networks, as Zuckerberg referred to the metaverse in 2022, might not save Meta, which has already lost about 75% of its stock price this year.
Professor Louis C H Fourie is an Extraordinary Professor at the University of the Western Cape
BUSINESS REPORT