According to reports, Meta Platforms will spend at least $70 billion betting on the Metaverse. Will this become the hottest money pit in the history of the tech industry? There is indeed such a possibility. Although Meta CEO Mark Zuckerberg has repeatedly claimed that the Metaverse will usher in a “new chapter” of the Internet, it’s not hard to look back on history to see that such a huge investment in a any new technology platform has a rare precedent. In Zuckerberg’s own words, the gamble won’t pay off until “the end of the decade.” In other words, at least another eight years for Meta to potentially reap the benefits. This begs the question: are the returns from Meta enough to justify the investment?
The best way to judge is to compare Meta’s bets to other tech companies’ investments in new platforms. Surprisingly, even though Apple and Google have already developed revolutionary new technologies like the iPhone and Android, their investments are much lower than Meta. But for Apple and Google, these investments have been huge successes. Apple and Google are always investing in the development of new technologies. However, they invest in products after testing market acceptance and returns are more likely.
Investment in the Metaverse is by far the largest yet
The closest thing to Metaverse betting is driverless cars and carpooling. The former attracted giants like Alphabet and General Motors, while the latter was launched by companies like Uber and Lyft. It should be noted that the amount of investment in these projects is always lower than the Metaverse investment of Meta and is carried out by several companies.
None of the companies above disclosed total investment numbers, but Meta may have disclosed the most. To be fair, it is enough to compare the investment before the official marketing of the product. This will help in better judging whether the metaverse project of Meta is profitable. Although Meta has already started selling virtual reality (VR) headsets, the Metaverse concept is still in its early stages of development. Zuckerberg believes this technology will create a “digital world” where people can feel the presence of others wherever they are. Potential application scenarios involve social interaction, working, and selling various digital products.
Ridesharing doesn’t count as the focus is on pre-launch investment, even though the industry is burning money by any measure – players like Uber are only slowly turning around. Meta investing also raises an important question: can an established company create new markets with a huge investment? In the past, these new markets were often created by budding startups.
Meta does what big companies don’t
Margaret O’Mara, professor of American history at the University of Washington, said: “Meta’s approach is novel because they are doing things that big companies have struggled to do in the past.
past.” O’Mara says it’s often difficult for large companies to create new markets because their vast resources can be a stumbling block instead of helping. “Due to the abundance of resources, it’s not flexible enough,” she said. “Businesses can become too conformist.” However, O’Mara also points out that “from a long-term perspective of impacting the economy, investing a lot money in exploring the future and building exciting new markets is always better than stock buybacks”.
Here’s a look at some of the most compelling new technology investments in the tech industry over the past 15 years. Note, however, that these numbers are initial investments and there are no inflation adjustments.
1. Metavers
- Total potential investment: $70 billion
- Results: unknown
Meta’s Reality Labs division is in charge of its augmented and virtual reality equipment for the Metaverse. Reality Labs had an operating loss of $21 billion from 2019 to 2021, with an annual loss of $10 billion. Reality Labs lost $5.76 billion in the first half of 2022. This suggests the division will lose even more this year. Meta, however, has decided to limit spending across all divisions in recent months.
“We’re going to invest and lose a lot of money over the next 3-5 years,” Zuckerberg said at Meta’s annual shareholder meeting this year. Assuming Meta invests at least $10 billion per year over the next 5 years, projects such as hardware and software investment will reach $70 billion by 2026. But these are just numbers cautious. In fact, their investments in the early 2030s could easily approach $100 billion.
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Meta investment can also be measured by research and development expenditure. That’s already 30% of the company’s total second-quarter revenue, well above most tech giants.
2.Apple iPhones
- Total investment: up to $3.4 billion
- Gain : $1.6 trillion in iPhone sales, and counting
Apple has been working on the iPhone since the early 2000s, according to Steve Jobs in 2010. The company’s engineers originally designed a touchscreen for a tablet. However, Jobs says he thought it would be promising to apply the screen to a phone. Thus, he adjusted the direction of the project.
In the years before the iPhone, Apple’s R&D expenditures from 2002 to 2007 totaled $3.4 billion. Some of those years accounted for as much as 8% of Apple’s total revenue, but that percentage began to decline as Apple’s revenue increased. Although the figure also includes other items apart from the iPhone, it gives us a rough idea of the size of the investment in the iPhone. According to reports, the investment in the first generation iPhone could exceed $150 million.
There is no calculation here for Apple’s investment in later versions of the iPhone after the release of the first generation iPhone. If you factor that in, it must be well over $3.4 billion. But subsequent iPhone sales are enough to fuel further research and development. In fact, Apple’s R&D spending as a percentage of revenue had fallen to 2.7% in 2010. It was 3% in 2016, but is now double.
3.Google Android
- Total estimated investment: up to several hundred million dollars
- Come back: At least tens of billions of dollars in revenue
Google has also invested relatively little in Android development. They most likely decided to develop this mobile operating system in order to catch up with Apple. That’s true, at least in Jobs’ eyes – according to Jobs’ biography, he claimed that Android was a “stolen product”. Google bought the startup, Android, to start the project, but it didn’t cost much. In 2005, the year Google bought Android, the company made 15 acquisitions totaling $130 million in cash and stock. However, they weren’t listed separately because they were small.
From 2005 to 2008, Google spent $6.7 billion on research and development in the year Android was released. When the first Android phone was released, Google’s internal Android team numbered less than 100 people, according to a former executive. Like Apple, Google continues to invest in Android, adding new features to the system every year. However, Android has also been a big contributor to the company’s ad revenue.
In 2016, Oracle estimated that Android’s revenue would reach $31 billion, contributing $22 billion to Google’s profits. The main source of income comes from advertising on Android devices and commissions on digital transactions from the Play Store. It is estimated that Google will pay at least $10 billion a year to become the default search engine for Apple’s Safari browser. There’s no doubt that Google would have paid Apple and other mobile operating system developers more if it hadn’t held the Android card in its hands.
4. Autonomous car
- Total estimated investment: over $27 billion
- Come back: Tiny income
At present, the level of cash consumption of driverless vehicles seems to be closest to the metaverse. But even when those investments are split between as many as 30 companies, the total is still far less than Meta’s investment in the Metaverse.
At the start of 2020, reports indicated that 30 companies had invested at least $16 billion in self-driving car projects over the past few years. Since then, that figure has grown to $27 billion. As one of six key companies, Google’s parent company Alphabet’s Waymo, General Motors’ Cruise, Amazon’s Zoox, Argo AI, Motional and Apple currently invest at least $4 billion annually together. Alphabet has the largest investment in Waymo. It was reported in early 2020 that Waymo had received a total investment of at least $3.5 billion by the end of 2019. It is now estimated to be at least $5.5 billion, but after 13 years of growth, the company has very little income. Meanwhile Cruise, which is controlled by General Motors, has spent at least $5.5 billion since its founding in 2013 and now generates paltry revenue from driverless services in San Francisco.