Meta Mixed Reality Viewed as Key to Next Generation of Computing

Meta has gotten criticism in some quarters for allotting as much as 20 percent of its research and development spending for new products, rather than existing products. Investors argue Meta is spending too much, too soon on metaverse products and software that might not be commercially viable for some time. 

Meta, on the other hand, is betting on possible leadership of the next generation of computing, and believes its investments now will pay off. 

If one believes in product life cycles, then one is forced to look at business strategy as including the development of new products to replace sales of products with declining demand. That, in turn, presupposes capital allocation and effort to discover or create those new products. 

Virtually nobody disagrees with that general principle. But as with staffing levels at software and technology firms, there is concern firms have “overhired,” and need to cut back on spending in the face of expected recession in 2023 and possible slower growth beyond. 

It should be noted that financial analysts often prefer that firms “stick to their core” business while business strategists more often emphasize what is needed to ignite and sustain growth. Either view has merit at times. 

Much the same possible divergence of opinion about research and development investment also exists. 

Some industries invest more in research and development than do others. Pharmaceutical, information technology and computing industries are heavy R&D spenders, for example. Computing and technology firms spend about 13.6 percent of revenue on R&D, for example. In many cases, R&D as a percentage of gross profits is higher. 

But Meta has in recent years been a heavy spender on R&D, compared to other firms. Microsoft, for example, spent 13 percent of net sales on R&D in 2020, compared to Meta’s 22 percent level.  

At least right now, many criticize Meta’s investment priorities. Meta seems determined to plow ahead. And few public companies of its size have a governance structure that allows Meta to proceed aggressively, without risking pushback from its equity investors. 

One can always make the argument that some of the R&D investment is essentially wasted, and that Meta might be able to achieve what it wants at a lower spending level. But that is a judgment call. 

But a recent statement by Andrew Bosworth, Meta CTO, makes clear the firm’s continued belief that mixed reality is so vital that high levels of research and development must be sustained, even as 80 percent of research and development continues to support existing lines of business. 

We may agree or disagree, but Meta is clearly betting that something else is coming, and that Meta has to spend now to lead that “something” that comes next, and represents the next era of computing.