I read [this article](https://kotaku.com/facebook-metaverse-vr-2022-billions-13-billion-quest-2-1850062517) this morning about how ~~Facebook~~ Meta’s VR division “Lost $13.72 Billion In 2022”. The article later says that Meta is burning through money. But if they’re spending money to generate a product, doesn’t that money go somewhere? If Meta doesn’t have the $14 billion, who does?
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The money goes to payroll (salaries of the people doing the research, HR, managers, etc.), facilities (buildings they work in), taxes, prototyping technology, among other places.
It costs a lot of money to run a business, especially one as bloated as Meta
Employees don’t work for free.
The lights don’t stay on for free.
The software licenses aren’t free.
The rent in the building isn’t free.
The hardware they’re prototyping isn’t free.
These things add up, and in Facebook’s case the R&D cash burn on whatever the Metaverse is supposed to be appears to be massive.
It’s going to people they’re paying to advertise. It’s going to the people they’re paying who build and maintain the servers. It’s going to any past debts they’ve made. R&d for VR isn’t cheap either, and that’s currently a huge money-sink
If you produce a good or service that is sold you have revenue coming in to balance out expenditures.
Meta spent a lot of money on VR related stuff, probably mostly paying wages of staff, but they did not generate substantial revenue. Meta needs their vr stuff to be widely adopted by the public so they can sell ads there. No users, no advertising revenue, all your investments paying staff to create the digital product is ‘burnt’. Money spent advertising your vr world has probably also been wasted, along with paying for buildings for your staff to work in, etc.
Wages, heating, electricity, renting office space and office equipment including computers.
Large companies like Meta will have existing product revenue but also invest into many different projects/products for the future. The company will have a strategy of reinvesting a portion of their revenue to fund these projects (which are usually NOT making a lot of revenue if any).
In some circumstances, say a pandemic, war or global energy crisis, the assumptions built into current revenue and future project revenues have to be revised. But these projects will continue to need funding (salaries, labs, etc) unless they are suspended or canceled, which any company would be reluctant to do since these projects are there for future growth.
There are, therefore, times when changing conditions cause current expenses to far outpace current revenues and the company will lose money.
Companies have a spend rate which is offset by revenue rate. A lot goes into both of those numbers, but basically a company is burning through money when their spend rate either exceeds their revenue rate, meaning they are spending more/faster than they are able to recoup. Or, their spend rate is threatening to exceed their revenue rate.
Some common reasons
Overstaffing
Overpaying (usually applies to C level and above)
Excessive “perks”
Poorly priced products
Over leveraged give aways/promotions
Over diversified
>If Meta doesn’t have the $14 billion, who does?
Meta is spending profits from the traditional Facebook business into the VR business, which is a bet that the invested money will turn into long term VR profits (I’m personally skeptical, but Zuck isn’t a dummy). There’s nothing terribly unusual about that. For example, a pharma company would do the same by investing profits from a successful drug into a number of new drugs.
It’s just a term for wasteful spending. It’s like a company buying a fleet of trucks but only use two or three of them at any time.
It takes money to ideate (heh), design, prototype and make things. A lot more than people realize.
lets say we want to make a new Flam. its the best flam ever. completely revolutionary flam. It will turn the Flam industry on its head.
Do you know how to design flams? no. hire an engineering/designer. they need an office? no work from home. ok where do you meet? his house? forget it. U need office space.
Engineer/designer has designed the new flam. He doesn’t have a CNC/SMT machine in his basement, so gotta go to a contract prototyping/mfg company. You gotta pay up front for the raw materials, a contract for set amounts of machine and machinist time. THEIR engineers point out how YOUR engineer is an idiot; redesign (at their $100/hr). Several design iterations. You haven’t even cut metal or made a board yet.
So the design is good, you make a few prototypes. When you’ll be making 10,000 flams at a time, the per unit cost will be (you think) $10 each. At qty under 20 its $1000. You make 20. That’s $20k on TOP of any NRE or non-returnable/refundable engineering aka the CNC machinist has to import your design file into the machine and make sure it doesn’t trash their $10M machine.
So you make your 20. Have some trial users. Send one for regulatory/safety testing. That’s $40k. Apply for a patent? $100k. Need to have your device safety tested for use in the UK? $20k. Needs to adhere to European recycling/material law? RoHAS/WEE/etc? $80k.
We haven’t sold a single flam yet and we’re already several hundred k bucks in. And you and YOUR engineer are working from home and renting an office at $100/hr to meet with vendors and potential investors.
Wanna show your new flam at Flam Expo 2023? Get a booth: $45k for the booth in Cincinnati, hotel, airfare etc. for you and your engineer. Scratch that, never take engineers to tradeshows. Hire a sales d00d. $$. Now you need PR. Buy ad space in Flam Monthly, full page spread in march edition: $100k.
YOu _still_ haven’t sold a single flam AND you haven’t even laid down the framework to make your flams in quantity. Contract manufacturing, warehousing, distribution networks, sales organizations etc.
The challenges are similar but different if we’re talking a software/app/service startup, but its more of the same. gotta hire developers. Servers. Software. Now you need IT guys. To hire the devs and IT guys you need HR guys. You haven’t shipped a single app yet and you’re several hundred k or millions in.
In the case of Meta’s VR crap: a whole (but much shittier) second life universe? from scratch? and custom VR hardware? $13Bn doesn’t seem so much to me given how many resources I can guestimate they’re throwing at the problem.
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