On October 29, 2021, at the Facebook Connect 2021 conference, CEO Mark Zuckerberg announced Facebook’s name change to Meta. It is no secret that Zuckerberg has bet the company’s future on the metaverse.
On February 3, 2022, Meta’s stock price plunged by over 26% following the release of its first financial report following the name change. The tech giant lost more than $232 billion (1.5 trillion yuan) in value, the biggest one-day decline in the history of the US stock market.
Facebook’s drop in value comes as the company is moving beyond its current business scope with declining user numbers to invest heavily in virtual worlds based on new technologies, according to Dan Milmo, the global tech editor at The Guardian.
In contrast, Tencent’s president Liu Chiping is less bullish on the immediacy of the Metaverse’s impact. Mr Liu stated “the development of the metaverse is still in its early stages, with many uncertainties, and will take longer to achieve than people expect. The metaverse is still a concept until it can truly deliver a high-quality user experience.”
Tencent’s strategy for its metaverse development focuses more on its software, compared to Meta’s strategy of focusing on hardware, such as VR devices.
However, Meta’s experience to date shows that approaching the metaverse via VR gear comes at a high cost. Meta’s Reality Labs segment, which focuses on VR/AR technology and products, made $877 million (5.6 billion yuan) in revenue in the fourth quarter of 2021 with an operating loss of $3.3 billion (21 billion yuan), while this segment lost $10 billion (63.7 billion yuan) last year.
Tencent believes that software will be a driving force, while hardware will be supportive since current mobile products can provide relevant user experiences.
Facebook’s metaverse bet
While Meta is aggressively investing in its metaverse plan, most of the company’s revenue relies on advertising, which has suffered as advertisers’ budgets have been hit by inflation and supply chain disruptions. Facebook’s current revenue is unable to cover the significant investment in the development of the metaverse, and losses are increasing as a result.
“For us, the business model in the metaverse is commerce-led. Clearly ads play a part in that,” according to Nick Clegg, Meta’s head of global affairs told the Financial Times during an interview in January.
However, critics say Zuckerberg chose to go through an abstract rebranding practice that doesn’t have a reliable product or service that consumers are willing to pay for. Many see Meta’s rebranding doubled efforts on the metaverse as a huge risk instead of exploring the space as an expansion of the company’s current scope.
Despite Meta deploying the metaverse in all directions, such as hardware access, software applications, content, digital currency, and so on, there is still a huge gap between these supporting technologies and the expected metaverse experience.
Tencent: The metaverse is a beacon to our digital future
Tencent is the creator of QQ and WeChat, China’s most successful social media apps. According to Tencent’s financial report released on November 10, 2021, WeChat had a total of 1.26 billion users, giving Tencent an exclusive advantage to enter the metaverse.
Tencent’s COO Mark Ren said, “We will not be very aggressive in our quest for a direct route to the metaverse. I’d rather deconstruct the metaverse, analyze its underlying logics and technologies required, and then verify them in the next stage of product development.”
Tencent believes in prioritizing the creating of an open platform based on UGC and PGC. For example, QQ uses a very open structure to encourage individuals to contribute, which is also the core idea behind the product. Tencent aims to develop the foundational structure and the basic tools first before offering users the ability to create.
Tencent has yet to officially announce a full-scale venture into the metaverse, but it has invested in many metaverse-related sectors, such as Sandbox Games, engines, VR/AR hardware. On January 10, 2022, Tencent acquired Black Shark mobile phones at the price of 2.6 billion yuan ($410 million). Black Shark was included in the Tencent PCG business group, with the goal of being used for VR’s R&D in the future.
At present, Facebook has failed to create a viable business model for the metaverse. Compared with Meta’s determination to gamble on the metaverse, Tencent is taking a more cautious approach. While Tencent may have missed the initial gold rush to the metaverse starting line, by deconstructing and analysing the foundation of the metaverse, China’s tech giant looks to win the long game.