Investors are nervous about meta betting on the metaverse, especially in light of current cash burn rates and vague promises of future income and profits. In fact, the company revealed in its latest results that he spent $15 billion on research and development (R&D) and product development last year alone.
Tech stock valuations are typically based on growth rates that far outpace gross domestic product (GDP), so management is always on the lookout for the next big thing. However, as these companies become larger and more mature, this is becoming increasingly difficult to achieve.
Still, we’ve been here before, and I can’t help but wonder if Meta’s bet on the Metaverse could be the new IBM Watson debacle.
IBM Watson Promise
At the beginning of the last decade, IBM was a mature, industry-leading technology company with over $100 billion in annual revenue, but growth struggled. As such, management was looking for the next growth driver, and given the size of the business, it had to be a great opportunity. That’s when IBM Watson, a question-answering computer system developed by IBM researchers that can answer questions posed in natural language, defeated a human champion on the TV show Jeopardy!. In 2011, management seized an opportunity.
IBM Watson was designed to identify word patterns and predict correct answers to trivia games, rather than a one-size-fits-all problem-solving tool ready to tackle open and ambitious problems. Team decided that Watson’s AI capabilities would be new. The blood that the company needed. There have been very ambitious press releases, marketing announcements and deals. Watson was featured on the American news program 60 Minutes, with advertisements showing Watson playfully chatting with celebrities such as Serena Williams and Bob Dylan.
In 2012, IBM announced a partnership with New York City’s Memorial Sloan Kettering Cancer Center and WellPoint (now Anthem) to use Watson for cancer treatment decisions. In 2013, a similar partnership was signed with his MD Anderson Cancer Center in Texas. In 2014, the company launched Project Lucy to bring IBM Watson to Africa in an attempt to solve some of the continent’s most pressing problems. In 2015, we launched a new consulting unit, Cognitive Business Solutions, to focus on opportunities related to this platform. In 2016, we also renamed our business segments and created Cognitive Solutions as part of that reorganization. He also spent $2.6 billion to buy Truven Health Analytics to feed his medical data into Watson. IBM was clearly betting on Watson.
At that point, no one could argue that artificial intelligence (AI) was the technology of the future, and it might not have been unreasonable for management to bet the company on IBM Watson. Or was it?
It’s unclear if the organization suffered from “groupthink” or if other dynamics were at work, but it seems that no one challenged the strategy, or at least had the power to do so. It is understood that David Ferrucci, the lead scientist behind Watson, warned the company of overpromising and left after a year. or whether the timing of these investments would deliver results within the timeframe required by public companies. Stock markets tend not to like 10-year time frames.
A decade later, neither the promised successes in improving humanity, such as a cure for cancer or alleviating poverty in Africa, nor the expected acceleration of revenue growth had yet to materialize. In 2017, his MD Anderson Cancer Center in Texas halted Watson’s efforts. IBM itself discontinued its Watson for Genomics and Watson for Oncology initiatives, eventually selling its Watson Health assets to investment firm Francisco Partners for just his $1 billion in early 2022. The company also had to divest other unprofitable businesses and now has about $57 billion in revenue. That’s almost half when the bet on Watson started.
Is there anyone internally challenging Meta’s management?
The similarities between IBM betting on Watson’s AI capabilities and Facebook in the metaverse are striking. AI and the Metaverse are both arguably the technologies of the future and could be big business, but it is unclear when and how the actual technology will triumph.
Both companies’ core businesses were slowing, putting management under pressure to find the next big growth driver. Likewise, both companies have strong management teams and may lack internal challengers. Like IBM’s bet, it may be too early for Facebook (now Meta) to invest in this technology. That said, CEO Mark Zuckerberg has been a successful visionary for some time, and it may just take time for his plans to work. Ultimately, this is the difficulty and joy of investing in technology.