While V.R. tech has been around for decades it's really only recently that Mr Zuckerberg has been able to put a name on his grand vision of the metaverse. So, before we dive into the V.R. technology and try to understand if it is compelling or not. We think it's really useful to take a step back and understand why Zuckerberg is so obsessed with winning the next format. Why is he such a shill for virtual reality and why is he so focused on winning the distant future when Facebook today isn't doing that great.
Facebook today is really a software services company, wherein Facebook is an internet service with a mobile client. Facebook ultimately has no control over the personal hardware, devices, the operating systems. the browsers and search engines that people use on those hardware devices to access its services. So, what Facebook actually wants is one’s personal data. Essentially Facebook wants to know one so well, that it can predict the things that, one would want to buy before even they know that themselves. Facebook this pile of stored data, can give us advertisements for products that we will have a high likelihood of purchasing even though they were not aware of the central problem. For Facebook, in order to achieve that level of truly personalized advertising, one needs an insane amount of personal data. For this Facebook needs to know more than just someone's date of birth, their city, their ethnicity, and their relationship status. To be precise, Facebook needs to know what that person likes, what they don't like, their taste, their lifestyle, their behaviour and even their routine. Basically, to know that person better than that person knows themselves.
The real problem is the personal device manufacturers, the iPhone, the androids, the laptop companies don't like that. Apple doesn't appreciate that Facebook is trying to collect more data on iPhone users than apple is trying to collect themselves. Even google does not appreciate it either, that Facebook is always trying to get to a place where they know more about android users than even google would ever know themselves. So, apple and google both believe that their users are entitled to some degree of privacy. But don't get us wrong here, I don't believe for a second that apple or google are privacy white knights. These are both still advertising companies. Both of these companies, google and apple admittedly hoard plenty of user data as well, but they have limits. Apple and Google both believe in giving users just enough privacy that keeps those users comfortable coming back to using the google search engine, watching videos on YouTube and buying new iPhone.
Let’s just consider a scenario, if apple and google users found out that Facebook was just selling their data wholesale, then it would have a pretty dramatic impact on market of people, who would want to buy iPhone and Androids. So, apple and google here are literally watching their own backyard. First, they're first making sure that their own bottom line is taken care of before they could let someone else like Facebook have a seat at the table. But Facebook as an organisation, is the total opposite of that. They don't have anything to lose because Facebook doesn't have any personal hardware devices. So, Facebook would rather have no privacy at all and the personal data that Facebook is aggressively looking to collect on each individual truthfully goes beyond what most people would be comfortable with. As Facebook constantly refuses to respect the privacy agreements and actively has been caught investing in engineers to try to find ways around privacy policies, the personal device manufacturers like google and apple have begun drawing the boundary for Zuckerberg.
Tim cook in particular decided that he had enough, and he gave Facebook the biggest problems with iOS 14. with iOS 14 iPhone users can now in one finger tap permanently prevent Facebook or any other company from tracking their in-app activity. So, for users who choose to disable app tracking, Facebook can now no longer track those users properly which then ruins their ad targeting accuracy, which ultimately leads to the wrong advertisements shown to the wrong audience. For example, lipstick ads that are meant to target young women might end up showing up in older men's news feeds. Un personalized ads are kind of like the bane for Facebook. They're trying to move away from those old billboards that you see on the highway that are asking for things that you don't really want, that are promoting services that you don't really need.
In Facebook’s world, that means fewer clicks which leads to lower ROI, and inevitably lower ad spend. Advertisers are then going to spend less money on Facebook. If they know that their money is not giving them the results that they want. if their ads are ultimately getting shown to the wrong people and that's less money in Facebook's pocket. So iOS 14 has done massive damage to Facebook's operation. The company is currently undertaking this massive multi-year effort to rebuild its advertising infrastructure. They're reworking their targeting and optimization systems to be able to function with less data to suddenly go from having this exact precise accurate personal data to now suddenly having to rely on this imprecise, aggregated, anonymized data. This is a massive change for Facebook as the accuracy and effectiveness of Facebook's advertisements have dramatically decreased with the company reporting a 10 billion dollar decrease in profit just due to iOS 14 changes alone. This is why Zuckerberg is pushing so hard for the metaverse. It's this virtual reality world that would run on hardware and software that Facebook entirely owns. Facebook is too smart to try and compete with google and apple to create the next search engine or the next iPhone or the next web browser.
The smartphone is just a personal device that Facebook knows it'll never be able to win. If you pretend that you're Zuckerberg, and you look around on all the personal devices that people have today. Then we can realise that it's actually kind of depressing, that you don't really have a place to compete. So then, what you have start looking at the personal devices that people don't have today but might one day have in the future. Herein virtual reality fits that bill perfectly. For Facebook, it's this personal hardware device that maybe one day people in the future will eventually use like smartphones. No one knows if that's true but objectively for Facebook that's a better bet than trying to compete for scraps with entrenched winners. For personal hardware devices that they'll never be able to win in the immediate future. So, Facebook wants to own its own hardware software and ecosystem of the future.
Zuckerberg doesn't want his future of Facebook to be another app, in someone else's app store, he wants to be the app store and so by owning its own hardware and software Facebook can have its own ecosystem. Herein Facebook can operate in a fully controlled environment where they set their own rules and policies around privacy and content. No more iOS 14, no more having to play nice with apple or google or Microsoft. Facebook will be able to call its own shots and collect as much data as it wants from its users that are on their hardware and software. So Zuckerberg's bet here is that virtual reality will succeed video and mobile internet this metaverse in his mind will unlock this large ecosystem where people buy and sell digital goods that exist only in their virtual worlds. But first before you get to the end state you have to first populate this metaverse with real people and Facebook is doing that with oculus. So, every year they're proactively doing their best to release cheaper newer lighter slimmer headsets to try to make virtual reality accessible for everyone. But Facebook knows that the public is still a long way off. Not everyone is really sold on the technology. The company continues to spend millions of dollars every year writing these glorious marketing campaigns hosting free oculus booths to try to evangelize virtual reality with the metaverse vision that's now been officially communicated to investors to the public to its users.
We should expect that Facebook is only going to ramp up the evangelism around virtual reality even more in the coming years. Facebook has also recently partnered with Luxottica to launch smart glasses as another way to achieve faster adoption. Virtual reality is the foundational hardware piece that Facebook is trying to win. It wants to get its V.R. headsets in the hands of as many people as possible and if virtual reality is too much of a leap for the broad public, then maybe it's AR hardware like those smart glasses. Virtual reality or augmented reality doesn't matter as long as those hardware devices are owned by Facebook. It's a win for Zuckerberg.
Next comes the software that lives on top of this hardware. Facebook is calling its operating system for the metaverse, horizon, which is this virtual world where people can come and live in. You can choose what you wear, and you can buy digital clothing that's made by developers to lure people to get closer to the metaverse. Facebook is taking steps to integrate with brands who are bringing their brands to the metaverse and they're also integrating this vision with their current products. Your 3d horizon avatar will also now be available in the 2d world of your Facebook, Instagram, and messenger accounts. So, it's all linking. As ridiculous as the metaverse sounds and as unlikable as Zuckerberg is as a public figure, the reality is the VR vision for Facebook is a true business play. This isn't a case of Elon musk where it's some tech billionaire that's too bored on earth dreaming of some dystopian future that they can control because they have more money than time instead. Metaverse is actually really just a company that's trying to protect its advertising feature from google and apple before it's all too late.
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