Meta layoffs are a sign the metaverse might not save the company after all

Meta’s costly pivot toward the metaverse is starting to take its toll. With soaring losses and a sinking stock price, the company has resorted to layoffs.

Mark Zuckerberg

Meta’s decision to reduce head count from Reality Labs is a telling sign of just how difficult the road ahead might be to achieve Zuckerberg’s “holy grail” of social networks.

Image: Facebook

Meta on Wednesday announced its largest ever workforce reduction with layoffs totaling more than 11,000 employees across numerous divisions. It appears that very few business units were spared, including those responsible for building Meta’s metaverse vision.

While CEO Mark Zuckerberg said on an earnings call last month the company was focusing its investments “on a small number of high-priority growth areas,” it looks like cuts were made both to Meta’s family of apps — Facebook, Instagram, and WhatsApp — as well as its AR and VR unit, Reality Labs.

“We’re making reductions in every organization across both Family of Apps and Reality Labs,” Zuckerberg wrote in a memo to employees published to Meta’s website on Wednesday, though Zuckerberg stressed in the same line that “some teams will be affected more than others.” That includes recruiting, he said, because the company plans to hire fewer people next year.

Yet Meta’s decision to reduce head count from Reality Labs to any degree is a telling sign of just how difficult the road ahead might be in achieving Zuckerberg’s vision of the “holy grail” of social networks, as he characterized the metaverse at the 2022 SXSW conference.

Reality Labs, the unit responsible for not only AR and VR but also prototypes in emerging technologies like mixed reality and brain-computer interfaces, is far and away the most ambitious and yet also costly big bet at the company. When former Meta CTO Mike Schroepfer stepped down in September 2021, VR hardware chief Andrew Bosworth took over. A month later, the company rebranded, from Facebook to Meta.

The concern now is that Zuckerberg might be too ambitious and too early to this next-generation internet he envisions. With its stock price having plunged by nearly 70% this year, Meta is taking drastic measures to ensure the company can survive in the short term — at least until the technology evolves to where it needs to be to enable the types of products and experiences Zuckerberg seems to be banking on. But the jury is still out on whether the metaverse will, in fact, save the company, or if Zuckerberg’s pivot might prove so costly and misguided that it derails the company entirely.

“The pressures Meta’s business is facing in 2022 are acute, significant, and not metaverse-related,” metaverse expert and investor Matthew Ball told The New York Times last month. “And there is a risk that almost everything Mark has outlined about the metaverse is right, except the timing is farther out than he imagined.”

That near-deadly combination — an economic downturn, a mobile advertising reckoning thanks to Apple’s privacy policies, competition from TikTok, and a poorly timed pivot — have started taking a serious toll on the company’s finances.

Meta has been hiring aggressively for much of its existence, and the pandemic only pushed the company to keep up the pace as online shopping boomed and the digital advertising industry reaped the rewards. By the end of September 2020, Meta employed just under 57,000 employees, a 32% year-over-year increase. By the end of September 2021, the company had added an additional 10,000 or so new hires, a 20% year-over-year increase. And at the end of its third quarter this year, Meta employed an eye-popping 87,314 employees, a 28% year-over-year increase to its highest-ever employment level.

The rate of hiring, especially over the last 12 months, speaks to how pivotal Zuckerberg believes the company’s shift toward building the metaverse to be. Meta has continued to spend lavishly on Reality Labs. Just this year alone, Meta has incurred more than $9 billion in losses on the division, and it reported just north of $10 billion in operating losses on the division last year. The company said it expects Reality Labs to lose even more money in 2023.

“We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year,” the company wrote in its earnings announcement last month. “Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run.”

At the time, it wasn’t clear how Meta intended to “pace” its investments in Reality Labs, but now we know it’s doing so partially by cutting head count. “Fundamentally, we’re making all these changes for two reasons: our revenue outlook is lower than we expected at the beginning of this year, and we want to make sure we’re operating efficiently across both Family of Apps and Reality Labs,” Zuckerberg wrote in his letter to employees Wednesday.

Meta said it intends to continue investing in Reality Labs and the metaverse for many years to come. Just before its last earnings announcement, when it disclosed a 50% decline in profit and its second straight decline in revenue, Zuckerberg hosted the Meta Connect conference, where he debuted the new $1,500 Quest Pro headset and opined about the future promise of digital world-building. The struggling Horizon Worlds, Meta’s social VR platform that’s suffering from a decline in monthly users, will someday soon grant your avatar working legs, Zuckerberg announced in a tongue-in-cheek presentation.

But for as lighthearted as the company likes to make the metaverse seem in professionally shot promotional material and digital keynotes, Zuckerberg’s ambitious gamble is starting to backfire with very real consequences for the company’s bottom line and, as of this week, the livelihoods of its many employees. Zuckerberg was open in his letter to employees that his decision “to significantly increase our investments” during the pandemic “did not play out the way I expected.”

“I got this wrong, and I take responsibility for that,” he wrote. But the clock is now ticking down, and Zuckerberg may very well have to admit a similar error about the company’s metaverse pivot unless he’s able to reverse course.


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