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FB's Strategy for Virtual Worlds

Facebook is well-positioned to be a leader in the future of virtual worlds

Facebook's Strategy + Virtual Worlds

What the metaverse will look like, and even what the metaverse is, is a constant topic of debate. We wrote about this back in July. While that’s important, I think we should look at what companies are currently best positioned to build (or at least be a major contributor) to the metaverse. While there are some popular companies like Epic Games (Fortnite, Epic Games Store, Unreal Engine) or Roblox, with their mission to be the place to “learn, work, play, create, and socialize”, a company that we think is best positioned is actually Facebook.

As a social network: Facebook, and more specifically Mark Zuckerberg, has a strong track record of “seeing around corners” (social profiles, Instagram, Whatsapp, Oculus, etc). While Discord is trying to create the “third space” for individuals, Facebook (and its products) is already there. Whether it’s Facebook’s core offering (2.74b active users), Whatsapp (2b active users), or Instagram (1.2b active users), Facebook plays an integral part to the social connections of billions of people around the world. This is one of the main reasons why Facebook is one of the most well-positioned companies for the emergence of robust virtual worlds (i.e. the “metaverse”).

Whatever the metaverse looks like, social will be a core component and there isn’t a company that is more core to the way we socialize online than Facebook.

As a place to create, play, and hang out: This is where gaming expertise comes into play and why most people think of Epic Games or Roblox as ideal pillars for the future of virtual worlds. However, Zuckerberg has positioned Facebook as one of the most strategic assets for future of gaming. It is going to pay off.

To start, Facebook is arguably the reason Zynga is as notable as they are today. Zynga acquired MyMiniLife in June 2009 who had built Farmville (the first game on Facebook) which would reach 10m DAUs just 2 months later. Zynga would later go public in 2011 at a $7b valuation (yes - Zynga had other hits as well but their first one was on Facebook’s platform).

Facebook then acquired Oculus in 2014, far ahead of VR’s recent acceleration. They then launched Reality Labs and Facebook Instant Games in 2016. In 2017, they created an AR studio (Spark AR) and followed that up with the launch of Facebook Gaming in 2018.

One of the most notable moves by Zuckerberg, that ended up not going through, was his pitch to the Facebook board to acquire Unity in 2015. In Zuckerberg’s email to the board, it is clear that he was identifying how important gaming technology would become in the future of not only tech in general but for Facebook specifically:

“Going back to the question of whether it is worth investing billions of dollars into Unity and other core technology over the next decade, the most difficult aspect to evaluate is that we cannot definitely say that if we do X, we will succeed. There are many major pieces to this ecosystem to assemble and many different ways we could be hobbled. All we know is that this improves our chances to build something great.

Given the overall opportunity of strengthening our position in the major wave of computing, I think it’s a clear call to do everything we can to increase our chances. A few billion dollars is expensive, but we can afford it. We’ve built our business so we can build even greater things for the world, and this is one of the greatest things I can imagine us building for the future.” (Source)

Zuckerberg would not get his wish and Facebook would not make this acquisition. Unity currently trades at a $40b market cap as of this writing.

As a VR/AR-enabled experience: It is important to also look at Reality Labs and how Facebook has built out and is leveraging this division to progress their vision of building out the metaverse. Reality Labs is the division for Oculus, Spark AR, and even neural interface company, CTRL Labs. Directly from the Reality Labs site, they clearly state their mission (quoted below), which is not dissimilar to how we picture what the metaverse might be.

"We create new, category-defining consumer hardware and software that are immersive, social, and increase the depth of people's connections." (Facebook Research)

This division is so important to Facebook that the Head of Facebook Reality Labs, Andrew ‘Boz’ Bosworth, was just promoted to be CTO of Facebook, signaling how important software and hardware will be for the future of the company. In the announcement of this promotion, Zuckerberg even states “This is all foundational to our broader efforts helping to build the metaverse,” (Verge).

Takeaway: Facebook is perfectly positioned to play a key role in the future of virtual worlds, integrated software/hardware, and social connection through immersive experiences. Today, they may look like just an ad-driven business (92% of revenue), yet over the next 5-10 years it will become so much more than that. This strategy will be spearheaded by their initiatives in gaming.