Facebook, which recently renamed itself Meta, plans to bet heavily on metasverse technology. However, Facebook's move could go the way of Google's rebranding as Alphabet.
According to Meta, the company's name change is to reflect the next goal, which is to pioneer the meta-universe industry and make it the successor to the current generation of Internet. Mark Zuckerberg, CEO of Meta, also said that since the company offers so many apps, it doesn't make sense to name the entire company after just one of them, Facebook.
If the move sounds familiar, it's because Google made a similar organizational change in 2015, hoping to make its businesses run more efficiently.
When Alphabet was founded, the company tried to keep Google entirely separate from the "other businesses" dedicated to the technology of the future. The latter include Waymo's autonomous driving business and Loon, which hopes to revolutionize the broadband communications market with solar-powered hot-air balloon technology.
But six years later, Google has been slow to push these moonshots. While some businesses looked promising, others were reintegrated into Google at huge losses, spun off as separate entities or even shut down altogether.
Whitney Tilson, CEO of Empire Financial Research and a former hedge fund manager, said Meta is planning to invest billions of dollars in the meta-universe over the next few years, and "we're going to see history repeat itself."
Mr Tilson thinks Google's main problem is trying to build an overall framework through Alphabet. But in reality, the company should have broken up ambitious projects, not kept them within the parent company. Alphabet is simply feeding these companies with lots of money and cutting them off from the market.
"Because these companies have unlimited access to capital with almost no oversight, they can't achieve as much as independent companies with their own boards," he says. "Companies in the latter category need to consistently demonstrate their achievements in order to receive investment from the market."
For example, Makani, Alphabet's electric kite project, could have used a more sustainable wind energy source, but in early 2020 Alphabet announced it was shutting it down because "the company's path to commercial competitiveness was much longer and riskier than anticipated."
Loon was also shut down earlier this year. In addition, self-driving car company Waymo recently lost its CEO, CFO, and other top managers, and sources say insiders are frustrated with the company's slow progress in expanding its business.
Other projects are moving from Alphabet's "other businesses" back to Google. Jigsaw, a tech incubator dedicated to tackling misinformation and other Internet problems, returned to Google in early 2020. Nest, a smart home project, and Chronicle, an information security company, made the same choice in 2018 and 2019, respectively.
Alphabet is spending a lot of money on these moonshots. Since Google changed its name, these "other businesses" have consumed $3.2 billion in capital investment and resulted in an operating loss of $24.3 billion, according to a media report in May. DeepMind, Alphabet's ARTIFICIAL intelligence company, reported a loss of $649 million in 2019 alone, mostly due to staffing costs and other items.
Investors shrugged off the losses. Since the name change, Alphabet's market value has soared. Since 2015, Alphabet's share price has doubled that of the S&P 500 over the same period.
Tilson said that no matter how the Metasverse project turns out, Meta will have a similar outcome because both companies' core business is digital advertising, and they have strong positions in that market.
Zuckerberg and other company leaders have acknowledged that it will be years before the metasverse actually comes to fruition. At least 10 years, to be precise.
However, Tilson argues that Meta should have chosen to do what Google should have done but didn't: focus on successful businesses and take care of the major problems associated with them, "rather than waste $1 billion a year on the metasverse."
"Google and Facebook are both examples of the world's greatest companies, but also examples of how the world's greatest companies get complacent, mismatched capital and try to build empires after huge cash flows." Tilson said.