Meta’s virtual reality business, Reality Labs, is spending money like a start-up. Unfortunately, it lacks the 10x growth to match. The company’s R&D spend in the first three months of the year exceeded $9bn, equal to 33 per cent revenues. That’s twice as high as Alphabet and Microsoft.
The tech sell-off last year has prompted sector-wide cost cutting, including record job losses. Meta is engaged in what it calls a year of efficiency. Still, the numbers coming out of Reality Labs are ugly. The unit reported an operating loss of almost $4bn for the quarter. That would be more palatable if losses were driving consumer demand. But sales are down 51 per cent on last year. Demand for the latest Quest 2 VR headset is limited. New mixed-reality headsets due out this year might be more popular. But for now, the idea of the metaverse as integral to our social and work lives is a bust.
It is noticeable that questions on Meta’s earnings call ignored the metaverse and focused on AI. Here Meta’s investment may pay off earlier. Its AI tools for advertisers and users could improve targeted digital advertising.