The Wall Street Journal Google Your News Update

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Alex Ossola: Late last month, Meta announced its earnings for the first quarter of 2024. The company reported record revenue of $36.46 billion that narrowly beat Wall Street expectations, but it projected a slowdown in second quarter revenue, which disappointed its investors. Meta stock dropped 11% following the company's results, its biggest decrease since October of 2022. Meta spent a lot of money on the development of artificial intelligence and the Metaverse. The company's Reality Labs division, which is developing the Metaverse and its AI efforts, hosted a $3.8 billion loss for the quarter. Here's Meta's CFO Susan Li in the April 24th earnings call.

Susan Li: For Reality Labs, we continue to expect operating losses to increase meaningfully year over year due to our ongoing product development efforts and our investments to further scale our ecosystem.

Alex Ossola: This is where the company is now. It's betting that it's developing the next version of the internet, and it's an expensive bet. To date, Meta has spent upwards of $50 billion developing the Metaverse, but it's still an open question whether this will pay off for the company, its investors, and for CEO Mark Zuckerberg. To understand why the company took this bet, we need to go back in time to the moment when Facebook became Meta, and set its plans for the Metaverse into motion

Mark Zuckerberg: To reflect who we are and what we hope to build, I am proud to announce that starting today, our company is now Meta.

Alex Ossola: From the Wall Street Journal, this is From Facebook to Meta, Zuckerberg's big bet, a special three-part series from Tech News Briefing about Meta's gamble on the Metaverse. It's Saturday, May 4th. I'm Alex Ossola. This is episode one, the beginning. We're digging into the name change and why the company made it, hanging in the balance, it's trillion-dollar business, Zuckerberg's reputation, and even how we use the internet. Leading up to the 2021 name change, Facebook's reputation had taken a few hits. In 2018, news broke that the consulting firm, Cambridge Analytica, had improperly access data from tens of millions of Facebook users. Before Congress later that year, Zuckerberg apologized and said, "Facebook will investigate any similar issues." Then there was another scandal in 2021. The Facebook files was a WSJ investigation based on internal Facebook documents. Those documents came from Frances Haugen, a former product manager at the social media company who sought federal whistleblower protection, and testified before Congress. The document showed that the company knew its platforms were full of flaws that caused harm, and the company had done little to stop it. Posting on Facebook after Haugen's congressional testimony, Zuckerberg said that the coverage painted a false picture of the company, that, "It cares deeply about issues like safety, and that it's always working to improve its products." We should note that we reached out several times to Meta about this and many other aspects of our series, and the company didn't answer our questions. Salvador Rodriguez is a social media business reporter at the Wall Street Journal.

Salvador Rodriguez: This was something that was really starting to take over the general narrative of Facebook. And those Facebook Files, stories began dropping in September, and by the very next month, the company had a new name, Meta.

Alex Ossola: In October 2021, Facebook announced that it would now be called Meta. At a virtual conference called Facebook Connect, Zuckerberg gave an-hour-and-15-minute presentation about his vision for the Metaverse and why the company was all in on it.

Mark Zuckerberg: Screens just can't convey the full range of human expression and connection. They can't deliver that deep feeling of presence, but the next version of the internet can. That's what we should be working towards. Technology (inaudible).

Alex Ossola: Outside the company, the announcement got a big reaction. Late night hosts, for example, had a field day.

Stephen Colbert: From now on, we are going to be Metaverse first, not Facebook first, but don't you worry, the self-esteem of teenage girls will always be last.

Jimmy Fallon: Yeah.

Speaker 7: Meta?

Jimmy Fallon: Meta.

Speaker 7: What?

Jimmy Fallon: Yeah, Meta. As in when I joined Facebook, I met a lot of crazy people.

Speaker 7: Hey. Yeah. Wow, baby.

Alex Ossola: Within four months after the announcement, Meta's market valuation fell by more than $200 billion. This was in part because of weak earnings that the company reported from the previous quarter, but some in the media also blamed the fall in stock price in part on the rebrand.

Speaker 8: I think the question at this point is this is a company that's pivoting and the stock has really gone nowhere since they announced their name change back in October.

Speaker 9: In my view, they made a classic strategic error in changing the name of the company to a thing that is not even in existence yet and will not make them money, and in fact will cost them tons of money for like a decade.

Speaker 10: There's obviously a lot of market concern about the direction that the company's going.

Alex Ossola: But not everyone was so taken aback by the name change.

Rade Stojsavljevic: They said it was going to be called something Metaverse related.

Alex Ossola: More on why some employees inside the company saw this coming after the break. Outside the company now known as Meta, people were surprised and even confused as to why an organization that had become a household name suddenly seemed to be pivoting away from the thing that had made it famous. But for people inside the company who were actually working on building the Metaverse, the change was a lot less surprising. Wait, you guessed it?

Rade Stojsavljevic: I guessed it was going to be called something related to the Metaverse.

Alex Ossola: At the time of the name change, Rade Stojsavljevic was a director of First Party Studios. That's part of Reality Labs, a division that brought together Meta's virtual and augmented reality units that's building the Metaverse. Simply put, he had been making games for the company's VR headsets. Stojsavljevic was laid off from the company in 2023. Bernie Yee started working at Oculus, a company that made virtual reality headsets in 2014 as an executive producer for a game development team, shortly before the deal closed for the company to be acquired by Facebook. He eventually became a technical program manager at Meta before being laid off in November 2022.

Bernie Lee: I felt quite neutral about it. I'm like, "Great. It's a name change." Mark has always demonstrated a kind of resilience and determination to stay in this space, so I didn't think too much of it.

Alex Ossola: Facebook had been talking about and investing in the Metaverse for some time. In 2014, it bought Oculus. In 2020, the company created Reality Labs. And Zuckerberg said the Metaverse was a priority for the company in the months before the name change. Here he is on an earnings call in July 2021.

Mark Zuckerberg: Now, the areas that I've discussed today, creators, commerce and the next computing platform, they reach important priorities for us and they reach can unlock a lot of value on their own. But together, these efforts are also part of a much larger goal to help build the Metaverse.

Alex Ossola: The rebrand gave Facebook an opportunity to shift the focus as it faced scrutiny from lawmakers, researchers, and users following Cambridge Analytica and the WSJ Facebook Files investigation. But Stojsavljevic recalls that Zuckerberg seemed enthusiastic about VR.

Rade Stojsavljevic: And you could just see whenever we did product demos and he got a chance to play around with a technology or a new piece of software, he just got really excited about it and that was genuine, and everybody saw that.

Alex Ossola: Building something new, no matter how enthusiastic you are about it, costs money. And Zuckerberg had said that it's going to cost Meta a lot of it to execute on the vision he laid out for the Metaverse. Here's Zuckerberg on an earnings call in 2022, nine months after the name change was announced.

Mark Zuckerberg: This is obviously a very expensive undertaking over the next several years, but as the Metaverse becomes more important in every part of how we live from our social platforms and entertainment to work and education and commerce, I'm confident that we're going to be glad that we played an important role in building this.

Alex Ossola: So Zuckerberg says the company is going to be spending a lot of money to make the Metaverse, but wait, what exactly will it be spending that money on? What even is the Metaverse? Here's how Zuckerberg defined it during the 2021 launch announcement,

Mark Zuckerberg: The next platform and medium will be even more immersive, an embodied internet where you're in the experience, not just looking at it, and we call this the Metaverse.

Alex Ossola: But others understand it differently. Jeremy Bailenson is the founding director of Stanford's Virtual Human interaction Lab. He's been studying VR since the 1990s.

Jeremy Bailenson: When you say Metaverse to me, I think about the brilliant author, Neal Stephenson, who is an incredible mind who coined the term for his nineties book called Snow Crash. And Metaverse simply means networking people together so that they're in a virtual world, they're remote physically, but they see avatars of one another, and they're doing things inside of a virtual space. It simply means being in VR together.

Alex Ossola: That message wasn't always clear to the people who were creating Meta's Metaverse. Bernie Yee and Roddy Stojsavljevic say that around the time of the name change, they would've struggled to define it.

Bernie Lee: If you told me to define Metaverse, I don't think I could in any meaningful way, and that's sort of my gripe with the whole Metaverse became out buzzword.

Rade Stojsavljevic: I think if you ask five or six different people, you'll get different answers. This is a way where we could get a conversation or a sense of presence different than what we would do on a phone call or Zoom that just feels more meaningful because you can emote, your hands are moving around.

Alex Ossola: Okay. The vision has been laid out. The stakes have been set. In name at least, Facebook is no longer the focus of this company.

Mark Zuckerberg: Building our social media apps will always be an important focus for us, but right now, our brand is so tightly linked to one product that it can't possibly represent everything that we're doing today, let alone in the future. Over time, I hope that we are seen as a Metaverse company.

Alex Ossola: Now the company has to make the Metaverse happen, and there's a lot to do. WSJ reporter, Sal Rodriguez.

Salvador Rodriguez: Within the company, it was also very much understood that none of what they had shown existed yet.

Alex Ossola: On next week's episode, we'll keep following Zuckerberg and how the Metaverse has developed. After three years, what does Meta have to show for its multi-billion dollar investment? What does it look like inside the Metaverse? Where do things stand with Zuckerberg's vision? In the meantime, tune in Monday for our regular show. From Facebook to Meta, Zuckerberg's Big Bet is a part of Tech News Briefing. Our producer is Julie Chang. I'm your host, Alex Ossola. We had additional support on this episode from Salvador Rodriguez and Brad Olson. Our fact-checker is Aparna Nathan. Michael LaValle is our sound designer. Jessica Fenton and Michael LaValle wrote our theme music. Our supervising producer is Katherine Milsop. Our development producer is Aisha Al-Muslim. Scott Saloway and Chris Zinsli are the deputy editors. And Philana Patterson is the Wall Street Journal's Head of News audio. Thanks for listening.