Perhaps no company has gotten more attention in the metaverse than Facebook-parent Meta Platforms (FB 1.44%).
After all, Facebook renamed itself Meta to signal its reinvention as a company focused on both social media and the metaverse, and the company also reformulated its financial reporting to break out reality labs, its division focused on virtual-reality and augmented-reality technology. Along the way, the metaverse has become a favorite talking point of Meta CEO Mark Zuckerberg, who has devoted a substantial amount of time on earnings calls to explain his vision of the metaverse and how it fits in with Meta's broader business model.
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In its fourth-quarter earnings report, Meta revealed an operating loss from reality labs of $10 billion in 2021 on just $2.3 billion in revenue, showing the company isn't afraid to throw billions of dollars at the emerging metaverse market -- but also that, for now, reality labs is a gigantic money pit.
Meta was an early adopter of virtual reality with its 2014 acquisition of Oculus, and that brand is the leading VR headset maker today, giving Meta the pole position in a key component of the metaverse. Despite that edge, there's another tech giant that investors looking for exposure to the metaverse should consider: Microsoft (MSFT 2.58%).
B2B vs. B2C
Much like in other tech sectors, there are two distinct ways to monetize the metaverse: business-to-business (B2B) and business-to-consumer (B2C).
B2C has been the focus of investors and much of the business media, but VR and AR tools may be gaining more traction in the B2B market, where companies are finding a range of ways to use the new technology.
Businesses are beginning to adopt virtual reality technology for things like product demonstration, hiring, and training. Rolf Illenberger, the Co-Founder and Managing Director of VRDirect, a tech company that helps companies connect seamlessly through VR, explained in an interview with The Motley Fool that equipment sales are one of the best applications for VR. One client, Illenberger said, was a German company selling forklifts to a company in Brazil. Such a sale would be difficult to do in person, but in this case, the German company just recorded VR content with 360-degree cameras, put it on a VR headset and sent it to their customer, who could examine the equipment as they would in person. Similarly, virtual showrooms have become popular applications for VR content as well.
Recognizing the value and potential of virtual reality, large enterprises are beginning to invest in VR headsets. Nestle, for example, has ordered 10,000 headsets, and VRDirect customers like Siemens, Porsche, and Deutsche Telekom have also made substantial orders. Illenberger envisions the headsets becoming as common as smartphones or computers in the workplace, though he notes that VR headsets can be easily shared right now.
While the adoption of headsets might seem to favor Meta, Illenberger sees the growth in the B2B space favoring Microsoft. After all, Microsoft has long been the leader in enterprise software, and large companies already rely on Microsoft for a wide range of needs, from operating software to hardware to cloud infrastructure to productivity tools. Microsoft's revenue streams are also diversified, as it owns a range of products from the Xbox gaming console to the Linkedin professional social network, whereas Meta has historically had just one revenue stream -- digital advertising.
On its recent earnings call, Microsoft CEO Satya Nadella said, "As the digital and physical worlds come together, we're seeing real enterprise metaverse usage. From smart factories to smart buildings to smart cities, we are helping organizations use the combination of Azure, IoT, Digital Twins, and Mesh to help digitize people, places, and things, in order to visualize, simulate, and analyze any business process."
Microsoft also has an edge over Meta in privacy: Facebook's multiple scandals have harmed its reputation for protecting user data, whereas Microsoft is the rare tech giant whose business doesn't involve monetizing user data. Microsoft's pending acquisition of gaming company Activision Blizzard should give it a strong position in the B2C market as well.
Next to Meta, however, Microsoft's glaring weakness is that it lacks a VR device. It recently discontinued its Hololens, its mixed-reality VR/AR device, according to several media reports, and its device strategy at this point is unclear.
Investor takeaway
Given the mix of strengths between Microsoft and Meta, investors may want to take a basket approach to the emerging metaverse sector. Microsoft appears to be the leader in the B2B component of virtual reality, while Meta is the device manufacturer -- and investors may even look to Apple (AAPL +0.35%), the consumer hardware leader that Illenberger expects could release a VR headset as soon as early next year.
In a market that could become the next major computing platform, as Zuckerberg has called, there are likely to be multiple winners. Diversifying between Microsoft and Meta should give investors exposure to both the B2B leader and the current headset champ.
