When social media giant Facebook changed its name to Meta Platforms (FB +1.93%) in October 2021, CEO Mark Zuckerberg said in the founder's letter that the company is "at the beginning of the next chapter for the internet," a platform that would allow users to experience the internet in an immersive way instead of just looking at it.
This platform is known as the metaverse. Zuckerberg pointed out that people can work, play, learn, shop, or collaborate within the metaverse through their virtual avatars irrespective of where they are located across the globe. From enjoying a music concert with friends to attending work from the comfort of one's home, the metaverse is supposed to be the next frontier of the internet where people will interact with each other in virtual worlds.
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Goldman Sachs estimates that the metaverse could create an $8 trillion revenue opportunity for its participants over the long run. Not surprisingly, Meta Platforms is pulling several strings to go after this opportunity. The social media giant's latest move could turn out to be its most significant one yet.
Meta Platforms makes an important metaverse move
Meta Platforms spent $10 billion to start building the metaverse in 2021, a figure that it says is expected to increase over the next few years. The company is building what it calls the world's fastest supercomputer to accelerate metaverse-related workloads, and it expects the same to be completed by the middle of the year.
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And now, Meta Platforms seems to have taken a big step toward monetizing the metaverse through its Horizon Worlds virtual reality (VR) social platform. The company has announced that it is now testing a way for creators and developers to sell virtual items and experiences within the three-dimensional worlds being created in the metaverse. In simpler words, Horizon Worlds users will be able to purchase items or unlock new areas within the application.
Meta Platforms will take a 25% cut of the money spent in Horizon Worlds after deducting the platform fees, which could range around 30%. Additionally, Meta has launched a bonus program for creators to encourage the development of virtual worlds. The company said in a press release that "creators will be rewarded for building worlds that attract the most time spent."
All this indicates that Meta Platforms is laser-focused on attracting more users to its virtual reality platform. Horizon Worlds reportedly had 300,000 monthly VR users in February this year, as reported by The Verge, and developers had created 10,000 virtual worlds on the platform.
Those numbers seem on the lower side compared to Roblox (RBLX +0.64%), another metaverse player that operates an online platform that allows developers to create, publish, and build 3D worlds. Roblox has over 11 million virtual worlds on its platform thanks to a cumulative base of over 29 million developers. The company had 55 million daily active users in February 2022, an increase of 28% over the prior-year period. What's more, Roblox users spent 3.8 billion hours on its platform in February, a 21% year-over-year jump.
Roblox's cross-platform presence spans personal computers (PCs), Apple's Mac and iOS, Alphabet's Android, Microsoft's Xbox, and VR devices such as Meta's Oculus and HTC Vive. So, Meta Platforms needs to step up its game on the content front to be able to attract more users. However, the good part is that it could quickly scale up and start making money from the metaverse.
A big opportunity is in the cards
Using Roblox as a reference point, it becomes evident that the metaverse could unlock a big revenue opportunity for Meta Platforms. Roblox finished 2021 with $1.9 billion in revenue, an increase of 108% over the prior year. The company saw a 45% increase in bookings -- which refers to the virtual currency bought by players on the platform to spend on in-platform items -- during the year to $2.7 billion.
So, Meta Platforms is sitting on a multibillion-dollar opportunity in this space, and it won't be surprising to see it generating more revenue than the likes of Roblox in the long run for a few simple reasons. First, Meta has a massive user base across its family of apps such as Facebook, Instagram, and WhatsApp, among others. There were 3.59 billion monthly active people on its family of apps as of Dec. 31, 2021, which gives the company a huge user base to cross-sell its VR platform.
Second, we have already seen that the company is pouring billions of dollars into the metaverse, which could quickly help it ramp up 3D content. Third, Meta is the leading seller of VR headsets, which act as a window for users looking to get into the metaverse. IDC estimates that its Quest 2 headset controlled 78% of the headset market last year. This hardware dominance could help Meta push its metaverse content, ramp up the user base, and improve monetization.
What's more, Meta hasn't ruled out the possibility of running advertisements on its virtual reality platform. Roblox has already shown us that brands are making their presence felt in the metaverse through virtual stores and product reveals. Given that Meta is a leading platform for advertisers and marketers, it could win big from metaverse marketing.
As such, Meta Platforms' focus on monetizing the metaverse could unlock a massive revenue opportunity. Analysts expect Meta's earnings to clock an annual growth rate of 18% for the next five years, but new revenue streams unlocked by the metaverse in the form of in-app purchases and advertising could help it grow at a faster pace.
