Facebook’s crypto failure is a red flag for its Metaverse plans

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Despite all the fanfare around Mark Zuckerberg’s plans for a cryptocurrency that was to bring “billions” in new revenue to the company he runs, the project died down with barely a whimper. Meta Platforms Inc, the company formerly known as Facebook, has agreed to sell assets related to the project born in 2019 as Libra and now known as Diem to Silvergate Capital Corp for around $200 million.

As Diem’s ​​director jumped ship last November and his ambitions curtailed amid fierce pushback from regulators and central banks, the death of the project was anticipated by some. But a postmortem tells us something more troubling: Facebook continues to struggle to develop new services without buying them, and in a tougher regulatory environment, that doesn’t bode well for Zuckerberg’s big metaverse plans. , a pivot he’s bet the whole company on.

Consider Facebook’s long history of innovation misfires: a home screen for Android phones that fell apart shortly after its launch in 2013; Snapchat competitors Poke and Slingshot (2014 and 2015); and the Parse mobile development platform. The company has also failed in its efforts to create its own versions of Amazon’s Alexa.

Facebook’s workforce seems to shine at execution and scale, but software developers who want to create innovative products tend to look elsewhere. At Facebook, many find themselves under pressure to ensure that a new prototype or feature contributes to advertising dollars.

It helps that the right acquisition can open doors to new markets. For example, the upcoming iPhone payment feature for merchants is possible largely because Apple Inc paid $100 million for Canadian startup Mobeewave, which makes payment technology for smartphones.

And although Zuckerberg spearheaded Facebook’s rapid pivot to mobile use in 2012, his $1 billion purchase of Instagram the same year was key to the change. Instagram now contributes more than a quarter of Facebook’s revenue.

The metaverse represents an even more radical pivot for the company. There is far less consensus that virtual reality (VR) will be adopted by the mainstream, and building software for VR is harder for engineering teams to adapt than it used to be. from desktop to mobile.

The obvious answer is that Zuckerberg is buying a company that is already making inroads in the metaverse, like Roblox Corp. This company’s wildly popular virtual world sees nearly 50 million daily visitors playing games, attending concerts, or just chatting with friends, exactly the kind of activities. Zuckerberg talked about hosting going forward. Roblox is even headquartered in Menlo Park, California, the same town as Meta, and with its recent stock plunge, must look like an increasingly attractive takeover target, except Zuckerberg’s hands are linked.

The regulatory environment has changed recently. Regulators, now appalled at having approved so many Big Tech deals in the past, have signaled they will scrutinize future acquisitions more carefully, if not block them. For example, the US Federal Trade Commission has opened a formal investigation into Meta’s $400 million purchase of virtual reality company Within, according to a December report in The Information. The report said that, at a minimum, Meta would not be able to finalize this deal for another year. Meanwhile, competition regulators in the UK have also blocked Meta from buying a GIF research company.

Zuckerberg clearly wants to buy his way into the metaverse. It’s acquired a string of smaller virtual reality companies over the past couple of years, mostly in the games space, including Big Box VR, Unit 2 Games and Beat Games, the studio behind Beat Saber. But it didn’t buy Instagram-like game-changers like Fortnight publisher Epic Games or game developer Unity Software. Zuckerberg attempted to buy Unity several years ago when its valuation was in the billions, according to The History of the Future, a virtual reality book by Blake J. Harris that primarily deals with the founding story of Unity. Oculus. Unity has since gone public and has a market capitalization of $28 billion.

Zuckerberg has to blame himself for not pursuing these acquisitions when regulators were a bit more lenient. Now, with its little-used $62 billion war chest, it must focus on the more daunting task of creating new services that consumers want to use. This is a difficult transition for any large company to make. Microsoft Corp managed to do this, but unfortunately for Zuckerberg, it took a brand new CEO, Satya Nadella, to make it happen.

Parmy Olson is a Bloomberg Opinion columnist covering technology

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