Meta Platform (uh, Facebook’s) market cap has dropped 38% since its “disappointing” earnings release. The numbers weren’t all that bad. They make the shares look cheap, a price to earnings ratio under 14.
But before you run to your bookie, Facebook has a bigger problem than metaverse software, Europe’s privacy laws or media schadenfreude.
Its cloud is not set up to do what its software proposes to do. And it seems to be doubling down on that bad design.
I call Facebook a “Cloud Czar” because it has 15 hyperscale data centers around the world. They’re bought with cash flow. Once open, they drop its hardware and scaling costs to near-zero. You can count the companies sharing this advantage on one hand – Apple, Microsoft, Google, and Amazon.
The problem is their location — 10 in the U.S., 4 in Europe, 1 in Singapore. That’s not where Facebook’s customers are. Most are in India, in Southeast Asia, in Africa, and in South America. These places depend on Facebook, Instagram, and WhatsApp for their connection to the global economy and global discussion. They’re not getting the metaverse.
The metaverse, for those who can’t get past the buzzword, is a combination of augmented reality (Pokemon Go) technology, virtual reality technology, gaming technology, and financial technology, layered on top of existing cloud-based systems. It will be immersive. It will also require a lot of bandwidth, and very low latency.
We’re already finding Cloud Czars stumbling under the load of Cloud Gaming. Google’s Stadia is quietly going away. I expect Amazon and even Microsoft to slow their roll. Apple just sits under the iPhone tree and waits for the money to fall on it.
For the metaverse to scale, it needs the Cloudless Cloud. It needs to go even beyond it, as I wrote recently. This process has only begun for the other Czars. Microsoft, Google, and Amazon are all starting to build smaller, “edge” data centers closer to their customers for these high bandwidth, low latency applications.
Facebook isn’t. Instead, it’s building another huge center in Idaho, taking advantage of low power costs. It’s still pushing Web3, the combination of blockchain and messaging that increasingly looks like a scam.
Facebook still refuses to rent its cloud capacity. It continues to ignore government warnings about how it handles data. Its cloud strategy is from another decade. Its software future is built around something its hardware can’t deliver.
Still want to buy this stock?
