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Zuckerberg Bet Big (and Maybe Got the Metaverse Very Wrong)

The Facebook founder put billions into a strategy that may not be what people want and he opened the door for an unlikely competitor.
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Mark Zuckerberg is beginning to see the light.

The Meta Platforms  (META) - Get Free Report CEO has been having a rough time since he turned his attention toward the metaverse, a network of 3D virtual worlds. 

He went so far as to change his parent company's name to Meta Platforms from Facebook. He then bought the Oculus Quest VR headset, rebranded it Meta Quest, and formed Reality Labs solely to work on all projects related to the metaverse.

But the metaverse has so far proved a costly venture.

Meta's shares and market value have dropped and Zuckerberg's personal fortune has shrunk, falling from $125 billion in January to $49.1 billion at last check, putting him No. 23 on the Bloomberg Billionaires Index.

Reality Labs is facing the hard reality that it's pouring out gallons of red ink, losing $10 billion last year and about $5.7 billion so far in 2022.

And leaked internal documents reveal discussions between Reality Labs management and employees, indicating that "Horizon Worlds" is ridden with game-breaking bugs, leading to a "quality lockdown" for the rest of the year.

Facebook and Microsoft Make a Deal

Zuckerberg acknowledged some of his missteps in an interview published in analyst Ben Thompson’s Stratechery newsletter.

Thompson also interviewed Microsoft  (MSFT) - Get Free Report CEO Satya Nadella shortly after the two tech giants announced a strategic partnership.

"The thing that I think I sort of missed there, though, is there’s a different loop around how people interact with discovered content," Zuckerberg said. 

"So before, the way this worked is you had your list of friends that you followed and you got their content and feed and you commented in line and the interaction was there."

Zuckerberg said he believed "that there’s still some of that, but I think it is by and large shifted to you use your feed to discover content, you find things that are interesting, you send them to your friends in messages and you interact there.

"So in that world, it is actually somewhat less important who produce the content that you’re finding, you just want the best content." 

Tiktok: 'A Very Effective Competitor'

Meta launched Reels on Instagram in 2020 and on Facebook in 2021 as its answer to the phenomenally popular short-video app TikTok, which is owned by Chinese tech giant ByteDance.

TikTok is available in more than 150 countries, has more than 1 billion users, and has been downloaded over 200 million times in the U.S. alone.

Zuckerberg says Tiktok has "proven to be a very effective competitor."

"I think we were somewhat slow to this because it didn’t fit my pattern of a social thing, it felt more like a shorter version of YouTube to me," he said.

Zuckerberg said that 50% or more of the time that people spend on the Facebook app is watching video at this point. 

"So it’s not like we’re against it, but it’s not the thing that we wake up in the morning and are like, 'This is what we are uniquely here to do,'" he said. "If we don’t do video, then there are other services."

Zuck Wants Meta to Connect People

"If we don’t focus on connecting people, then it’s not clear that there are going to be others who are doing stuff at the scale and the quality that we are, even though there are plenty of other competitors out there," he added.

Even as more content becomes video, Zuckerberg said "it’s not like photos are going away or text is going away, or news links are going away, or groups are going away, or any of these things.

"They’re going to still be there,"  he said. "The addition of more content tends to be generally additive to the overall ecosystem, but no one is really building the AI recommendation system or the discovery engine, as we call it, across all of these different types of things and blending them together."

Zuckerberg said having the ability "to kind of intermix video, photos, text, all these different things, content from friends, content not from friends is going to be a really big advantage.

"It’s not a technological advantage as much as it’s an advantage from the way that we look at the world and the problem that we’re trying to solve, which is a different problem than what others are trying to solve," he said.