Meta’s AI Investments Ramp Up as Reality Labs Loses Billions

Meta Platforms, the company formerly known as Facebook, is betting big on artificial intelligence (AI) as the key to its future growth and innovation. However, the company is also facing huge losses from its Reality Labs division, which is responsible for its virtual reality (VR) and metaverse initiatives.

AI: The Focal Point for Meta

In its third quarter earnings call with analysts on Wednesday (Oct. 25), Meta’s CEO Mark Zuckerberg said that AI will be the company’s biggest investment area in 2024, in terms of engineering and computing resources. He said that AI is bringing the cost of commerce and messaging down and will be another line of focus next year.

Meta’s AI Investments Ramp Up as Reality Labs Loses Billions
Meta’s AI Investments Ramp Up as Reality Labs Loses Billions

Meta’s CFO Susan Li said that the company has been testing various AI tools in its AI sandbox, and incorporating them into its Ads Manager and Advantage+ solutions. She said that AI-driven feed recommendations have increased the time spent on Facebook and Instagram, and that AI tools for advertisers have also driven results with Advantage+ shopping campaigns.

Zuckerberg also said that Reels, the short-form video feature on Instagram, has graduated from being an early initiative to being a core part of the company’s apps. He said that Reels has driven a 40% increase in time spent on Instagram since its launch, and that it is net neutral to the company’s ad revenue.

Reality Labs: The Costly Bet on the Metaverse

While Meta is investing heavily in AI, it is also losing billions of dollars from its Reality Labs segment, which houses its VR and metaverse technologies. The company changed its name to Meta in late 2021, signaling its ambition to create a digital universe where people can work, shop, play and learn.

However, the metaverse vision is still far from reality, and the company is facing challenges in scaling its VR ecosystem and attracting users. In its earnings report, Meta said that Reality Labs recorded a $4.28 billion operating loss in the third quarter, bringing its total for 2022 to $13.72 billion. The division generated only $727 million in revenue in the third quarter, and $2.16 billion for the whole year.

The company said that it expects operating expenses tied to Reality Labs to surge further in 2023, due to its ongoing product development efforts in VR and AR. The company also raised the price of its Quest 2 VR headset by $100 in July, citing inflationary pressures. It then launched its more expensive Quest Pro VR headset in October, targeting enterprise customers.

However, sales of VR headsets in the U.S. declined 2% in 2022 from the prior year, according to data from research firm NPD Group. Meta is also facing competition from other tech giants such as Microsoft, Apple and Google, who are also developing their own metaverse platforms and devices.

The Future of Meta

Meta’s earnings report showed that the company still relies on advertising for substantially all of its revenue. The company’s total family of apps revenue came to $33.9 billion in the third quarter, up 24% year over year. Ad revenue was $33.6 billion, up 21% on a constant currency basis.

The company’s daily active users were 2.1 billion, up 5%, or 101 million, compared to last year. Monthly active users grew by 91 million, or 3%, compared to last year.

The company also faces regulatory scrutiny and public backlash over its impact on society, privacy and democracy. The company recently agreed to pay a $14.25 billion settlement to end a class-action lawsuit over its Cambridge Analytica scandal. It also faced a series of damaging revelations from a former employee turned whistleblower, Frances Haugen, who accused the company of prioritizing profits over people’s well-being.

Meta’s CEO Mark Zuckerberg said that he is optimistic about the company’s future, and that he believes that the metaverse will be the next frontier of social media and technology. He said that he hopes to get around a billion people in the metaverse doing hundreds of dollars of commerce by the second half of the decade.

However, it remains to be seen whether Meta can successfully execute its vision and overcome its challenges, or whether it will be left behind by its rivals and regulators.

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