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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Acquisitions (buying control of a smaller company) expansion of existing facilities. Executive benefits and bonuses. New product development can cost a lot. If you are in a hurry, you can hire hundreds of experienced software engineers to create a new program faster.
The factory I work at once spent 3.1 million dollars on a machine that was supposed to revolutionize production for some of the parts we made. They spent years and even more money trying to get it to produce good parts. It never did produce good parts. A couple of years after that purchase they bought a different machine for a couple mil, for a different part. While this machine did produce some good parts, about 1/3 of what it produced were scrap and the machine broke down constantly and ran slower than the old production line.
They were spending money left and right, but they never actually made a profit from those purchases. It was costing them even more money than it cost them with the old production line that required more people to run.
This is an example of how companies burn through money. They make investments, maybe in new machines or new products. They spend thousands of hours in the hopes that what they are spending their money on will actually make them even more money than they spent to get to this point. When that doesn’t pay out in the end, say because the product they were spending all of that time(wages) and money on doesn’t earn them any money they are just throwing money away. They could have continued on as they were before, without spending that money and they would have come out ahead.
For something like VR, they spend a large amount of time and money trying to develop a brand new product in the hopes that when it’s completely developed, they’ll be able to sell it and make back all of that money they spent, plus even more.
Sure, that money goes into the pockets of the employees and any third party businesses they pay, but the company itself has lost money. They aren’t a business for the sole purpose of giving away money to people. They are a business trying to make money. And their investors expect to get a return on their investment, which they are less likely to get if they are spending money on developing a new product and not making any money on that failed product.
There’s spending money to make money and there’s “losing” money
Let’s say i own a grocery store. Let’s say 1 month I spend 20,000 on buying coca cola to sell in my store. I’m probably gonna make more than the 20k I spent back because coke tends to sell well so that’s just “spending money”
But let’s say I spend 20k buying “Vladimirs ultra short shelf life caviar soda” and I sell like none of it (because ew) and so I end up throwing it out, that’s “burning money”
In Amazon’s case, it means developing crap like ‘rings of power’!
Big entertainment companies today seem to have infinite reserves of cash to blow on the tripe they put out these days. The most recent Star Wars movies by all rights should have completely sunk Disney into the depths, due to how much money was spent versus what they made from viewer numbers.
But the mouse is still alive and kicking, so to say, and well on the way to tanking yet another franchise with the upcoming Indiana Jones.
I just can’t understand how these companies investors still fund the crap spewed out, when by all accounts most of these movies *lose* more money than they make…and quite rightly so!
Imagine you open a store that sells nothing but canned dog poop. You have to pay employees, suppliers, electricity bill, rent, insurance, etc. All the costs of running a business. You thought canned dog poop was going to be the next big thing, but turns out, nobody wants anything to do with canned dog poop, not to mention your canned dog poop is by far the poopiest. Just shockingly bad canned dog poop. So no one is buying your poop but you still have to keep paying all those costs of running your canned dog poop shop. Instead of *incoming customer money* paying those costs, you’re paying them via *your own savings or by getting loans*. When the majority of the business costs are being paid by saved money or loans instead of money from paying customers, that’s what is meant by “burning through money”.
You may be taking the idiom “burns through money” too literally. All it means is that they are spending much more money than they are generating in revenue. And that is not a sustainable business model.
“burn through money” is a way of saying they’re spending money that isn’t yet generating enough revenue to cover the spend. Like maybe they spent $15B but only generated $1B in sales from the division, resulting in a $14B loss.
The money goes to salaries and benefits of the employees working on the VR product, the costs to provide offices, computers/equipment, software, lunches/snacks, etc. to workers; advertising/marketing budgets; any sort of IP they need to license or acquire; cost to file patents on their IP; the cost to build prototypes; the cost to re-tool factories to build VR headsets; perhaps write-downs if they have unsold obsolete products, etc.
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.
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.
>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.
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