47.5%, Meta wants to dig up gold in the metaverse

Image source @ Visual China

The text | moldy

Meta, whose market capitalization has been declining, is mining gold in the metaverse.

Recently, according to CNBC' report, Meta, which actively embraces the metaverse, allows some creators to sell digital assets, including NFTs, in its metaverse social software Horizon Worlds, but as the operator of the game, Meta will take a commission of up to 47.5% from each transaction.

Commissions are not uncommon on Internet platforms, including live sales commissions, e-commerce transaction value commissions and mobile phone app store commissions, etc., but the meta-universe is still in the embryonic stage of development, and commissions are still a rare thing. Meta, which has long been laid out in the metaverse realm, is eager to open the Pandora's box of metaverse product commissions.

47.5%, Xiao Za wants to make money?

Meta bet on virtual reality tracks early on, spending $2 billion on Oculus in 2014. However, the VR industry, which was considered to be in the limelight at the time, experienced industry Waterloo within a few years, and many companies returned home.

Meta is less concerned about changes in the external environment, seeing virtual reality as the future, and Oculus is more like a "ferry ticket" to the future that it bought for $2 billion.

Within Meta, there is a dedicated FRL division (Facebook Reality Labs) to promote the development of the VR/AR hardware and software ecosystem. Zuckerberg has said the company expects to invest tens of billions of dollars in the FRL division in 2021, and this number will continue to grow in the future.

Judging from the financial report, what Xiao Za said is not false. VR cutting-edge technology exploration and ecological layout is very cash-burning, Meta's 2021 financial report shows that the FRL department lost more than 10 billion US dollars a year, which is a proper cash burner. But from the recent situation of Meta, the company itself and the market do not seem to allow FRL to continue to burn, invested in so many years of technical exploration, in the end, the market and investors to see the corresponding dawn of profitability.

First, with the advent of Apple's ATT policy last year, it is difficult for Meta with social software as the core to accurately obtain user data, which in turn affects the accuracy and cost of advertising.

You know, from the perspective of revenue, Meta is more like an advertising company, the advertising business in the third quarter of 2021 accounted for 97% of the total revenue, driven by Apple, the future growth of Meta's advertising business is not clear.

Second, in addition to being questioned by the public in terms of privacy and security, Meta has affected the market's judgment of the long-term value of Meta under the impact of short video platforms such as TikTok. Meta executive Mark Zuckerberg said TikTok in the short video space is a very large competitor.

After changing its name from Facebook to Meta, actively embracing metaversity has not effectively boosted Meta's company stock price. At the beginning of February this year, Meta's stock price fell 26% after the release of the fourth quarter of 2021, and as of April 16, The Meta market value was $570.5 billion, compared with the trillion market value in September last year, and the gap with AMA (Apple, Microsoft and Amazon) is getting bigger and bigger.

Obviously, Meta set a 47.5% commission ratio to prove to the market that the platform's new profit model and that it has done something in the metaverse field that is considered the future direction of development.

How much revenue Meta can bring is not the focus, the key is to let users and other manufacturers see that Meta has the ability and confidence to draw such a high commission.

The commission ratio is as high as 47.5%, where is the bottom of Meta?

In the current VR field, Meta is one of the few players with strong software and hardware strength, thanks to its long-term exploration and layout.

At the hardware level, counterpoint reported that Oculus had a market share of 75 percent in the first quarter of last year, up 41 percent from the first quarter of 2020. IDC data shows that last year, the global AR/VR headset shipments exceeded 10 million, an increase of 92.1% year-on-year, of which Oculus's share reached 80%.

In the software field, this is also the weak environment of many VR manufacturers, and the decline of the VR industry in 2016 is related to the lagging development of the VR software ecosystem. Meta, which is itself a major software manufacturer, not only has popular applications such as Horizon Worlds on Oculus, but also has dozens of platform-exclusive games such as Chronos and Dace Central.

The best-selling hardware paves the way for the development of Oculus' software ecosystem, attracting more developers to actively join it, and at the same time, the emergence of high-quality exclusive applications and games on many platforms has made consumers more inclined to choose Oculus products when purchasing VR devices.

In the VR field, Meta, which holds two trump cards in software and hardware, has enough confidence to set a 47.5% commission ratio. According to Meta, the 47.5% commission percentage is not set arbitrarily, of which 30% is the hardware platform fee and the other 17.5% is the software platform fee of Horizon Worlds. As long as you look at the commission ratio separately, it is not higher than the 30% commission ratio of Apple's APP Store.

Another point of concern is that last year, Orlus' platform app downloads have exceeded 10 million, more than double that of 2020, and more users have become accustomed to downloading and using apps on Oculus and seeing it as another multifunctional entertainment platform.

Judging from Meta's early layout of Oculus's software ecology initiatives, it wants to learn from Apple's original APP Store development model, open up app stores on "new" hardware in advance, and stimulate platform developers in the form of commission incentives. The difference is that the metaverse needs to be based on popular virtual reality applications like Horizon Worlds, and there are more commissions, including various digital asset products.

Taking the path of software monetization model now helps Oculus consolidate its position in the industry. Oculus Quest 2 starts at a full $100 (starting at $399 for the previous generation), and it can be seen from the pricing of the product that Meta grabs the market by reducing the starting price of hardware, hoping to make money from software services in the future.

Meta wants to lead the trend of meta-universe commissioning?

Meta, which is at the forefront of the industry, is telling other industry players in the form of commissions that the profit model of the meta-universe can be more diversified.

On the one hand, various digital assets can be applied to metaverse applications such as Horizon Worlds, and the platform can get a piece of the pie from the increasingly popular digital asset transactions; on the other hand, Meta's move may lead other manufacturers to adopt similar measures when the platform software and hardware are mature, and work together to tap the "gold mine" in the metaverse.

Just as the iPhone does not come with a charging head, once the more influential manufacturers in the industry start, other players are likely to do similar things, after all, the market followers bear much less public pressure.

The 47.5% commission rate may only be temporary, as Apple spokesman Fred Sainz put it, "Meta tries to charge these creators much higher than other platforms." "The 47.5% commission ratio is too high, and it may fall back to about 30% in the future, which is on par with mobile app stores."

However, the door to meta-universe high-percentage commissions opened by Meta will most likely not be closed, and other manufacturers need such high-proportion commission examples to tell more convincing business stories to investors.