Meta Meets Microsoft – Stratechery by Ben Thompson – Stratechery by Ben Thompson

Meta Meets Microsoft – Stratechery by Ben Thompson – Stratechery by Ben Thompson

Meta Meets Microsoft – Stratechery by Ben Thompson – Stratechery by Ben Thompson 512 512 charlie

On the business, strategy, and impact of technology.
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There is an easy to way to write this Article, and a hard way.
This weekend the easy way seemed within reach: I watched Meta’s Connect Keynote (I had early access in order to prepare for an interview with Meta CEO Mark Zuckerberg and Microsoft CEO Satya Nadella) and was, like apparently much of the Internet, extremely underwhelmed. Sure, the new Quest Pro looked cool, and I was very excited about the partnership with Microsoft (more on both in a moment); the presentation, though, was cringe, and seemed to lack any compelling demos of virtual reality.
What was particularly concerning was the entire first half of the keynote, which was primarily focused on consumer applications, including Horizon Worlds; Horizon Worlds was the the app The Verge reported was so buggy that Meta employees working on it barely used it, or more worryingly, was buggy because Meta employees couldn’t be bothered to dogfood it. The concerning part from the keynote was you could see why.
That was why this Article was going to be easy: writing that Meta’s metaverse wasn’t very compelling would slot right in to most people’s mental models, prompting likes and retweets instead of skeptical emails; arguing that Meta should focus on its core business would appeal to shareholders concerned about the money and attention devoted to a vision they feared was unrealistic. Stating that Zuckerberg got it wrong would provide comfortable distance from not just an interview subject but also a company that I have defended in its ongoing dispute with Apple over privacy and advertising.
Indeed, you can sense my skepticism in the most recent episode of Sharp Tech, which was recorded after seeing the video but before trying the Quest Pro. See, that was the turning point: I was really impressed, and that makes this Article much harder to write.
I wrote about virtual reality and the Metaverse a number of times last year, including August’s Metaverses, Meta’s keynote and name-change in October, and Microsoft and the Metaverse in November. The most important post though, at least in terms of my conception of the space, was this August Update about Horizon Workrooms (not to be confused with the aforementioned Horizon Worlds):
My personal experience with Workrooms didn’t involve any dancing or fitness; it was simply a conversation with the folks that built Workrooms. The sense of presence, though, was tangible. Voices came from the right place, thanks to Workrooms’ spatial audio, and hand gestures and viewing directions really made it feel like the three of us were in the same room. What was particularly compelling was the way that Workrooms’ virtual reality space seamlessly interfaced with the real world…
I don’t want to go too far given I’ve only tried out Workrooms once, but this feels like something real. And, just as importantly, there is, thanks to COVID, a real use case. Of course companies will need to be convinced, and hardware will need to be bought, but that’s another reason why the work angle is so compelling: companies are willing to pay for tools that increase productivity to a much greater extent than consumers are.
I don’t have much of a company, but I did buy Quest 2’s for the Passport team, and we held one meeting a week in Workrooms. One in particular stands out to me: we made a major decision about the product, and my memory of that decision does not involve me sitting at my desk in Taiwan, but of being in that virtual room. The sense of place and presence was that compelling.
Then one of the developers moved house, temporarily misplaced his headset, and we haven’t used it since.
It was my experience with Workrooms that undergirded my argument that Microsoft was the best placed to succeed with virtual reality. Yes, virtual reality entails putting on a headset and leaving your current environment for a virtual one, but that is not so different from leaving your house and going to the office. Moreover, Microsoft’s shift to Teams as its de facto OS meant it was well-placed to deliver company-specific metaverses:
This integration, though, also means that Microsoft has a big head start when it comes to the Metaverse: if the initial experience of the Metaverse is as an individual self-contained metaverse with its own data and applications, then Teams is already there. In other words, not only is enterprise the most obvious channel for virtual reality from a hardware perspective, but Teams is the most obvious manifestation of virtual reality’s potential from a software perspective.
The shortcoming was hardware: Microsoft had the HoloLens, but that was an augmented reality device. Continuing from that Article:
What is not integrated is the hardware; Microsoft sells a number of third party VR headsets on said webpage, all of which have to be connected to a Windows computer. Microsoft’s success will require creating an opportunity for OEMs similar to the opportunity that was created by the PC. At the same time, this solution is also an advantageous one for the long-term Metaverse-as-Internet vision: Windows is the most open of the consumer platforms, and that applies to Microsoft’s current implementation of VR. The company would do well to hold onto this approach.
This Article seems quite prescient given the announcement that Microsoft is partnering with Meta going forward: Microsoft is bringing its Teams-based ecosystem to Quest, along with enterprise tools like Azure Active Directory and Intune device management, with Xbox Game Pass thrown in for good measure. In doing so Microsoft gets to piggy-back on Meta’s massive investments in hardware.
It’s difficult to overstate what a massive win this feels like for Microsoft: the company will have a privileged position on what is for now the most advanced headset with the most resources behind it, not because it is paying for the privilege but because it is the most obvious go-to-market for this new technology. I argued in that Article that VR adoption would probably look more like the PC than it did smartphones:
Implicit in assuming that augmented reality is more important than virtual reality is assuming that this new way of accessing the Internet will develop like mobile did. Smartphone makers like Apple, though, had a huge advantage: people already had and wanted mobile phones; selling a device that you were going to carry anyway, but which happened to be infinitely more capable for only a few hundred more dollars, was a recipe for success in the consumer market.
PCs, though, didn’t have that advantage: the vast majority of the consumer market had no knowledge of or interest in computers; rather, most people encountered computers for the first time at work. Employers bought their employees computers because computers made them more productive; then, once consumers were used to using computers at work, an ever increasing number of them wanted to buy a computer for their home as well. And, as the number of home computers increased, so did the market opportunity for developers of non-work applications like games.
I suspect that this is the path that virtual reality will take. Like PCs, the first major use case will be knowledge workers using devices bought for them by their employer, eager to increase collaboration in a remote work world, and as quality increases, offer a superior working environment. Some number of those employees will be interested in using virtual reality for non-work activities as well, increasing the market for non-work applications.
This is still my position, and my experience with the Quest Pro only confirmed it. A lot of the new functionality is very impressive: the facial expression detection really works, and the new controllers are shockingly precise (one highlight was playing Operation and feeling like you actually had a chance). The best demo of all, though, was the updated version of Workrooms; the product manager showing me the new features was actually in Austin, Texas (I was in California), but that was the only demo where I actually forgot about the people in the room with me: mentally I was truly in a virtual meeting room.
At the same time, this was a $1,500 device. On one hand, that was actually cheaper than I expected; on the other hand, it still has significant weaknesses: it’s heavy, the battery life is only an hour or two, and the resolution is still disappointingly low. I’m not sure I can justify buying it for my Passport team, even if we were still going through the hassle of pulling on a headset for one meeting a week.
So where does this leave Meta?
First off, while Quest Pro is a definite leap forward, we still seem a few years away from a device that is truly ready for mass consumption. I noted the big issues above: weight, battery life, and resolution.
A bigger concern I have is software: the most compelling use case is meetings, and that matters for a market — enterprise — that is not only not Meta’s primary focus but that the company is effectively outsourcing to Microsoft. This raises a further strategic concern: the inverse of Microsoft winning by virtue of Meta spending billions on hardware to make Microsoft VR software compelling is that Meta runs the risk of being the IBM to Microsoft’s DOS. Zuckerberg admitted the risks but argued the benefits outweighed them:
I think the pros of the partnership way outweigh the risks. Obviously nothing is risk-free, but at the end of the day, we also have to do our job and deliver world-class services and hardware. If we don’t do that, then obviously we will lose. I do think though that there is this alignment that we talked about before between the things that we primarily care about, which are the aspects of the platform around expression…
I think basically everyone else in the space would focus more on the the single-player experience. Our bet in this is a deep bet that the connection aspect matters more and this has been part of the experience of running the company all along, is that even just growing up we’re told, “Do your homework, then go play with your friends.” I just think at some level that’s wrong. The connection between people is the point, not the thing that you do after everything else.
I do get the vision: while meetings have obvious utility, if you go back to the broader Metaverse vision the idea of, say, watching a basketball game courtside with my friends, despite the fact we are scattered all over the world and no where near a stadium, is a really compelling one. Social experiences in VR, though, require everyone involved to have a compatible VR headset.
Social media on your computer or phone isn’t like this: one of the reasons why an ad model is so compatible with social media is because it enables the service to be free, which makes it much more plausible that your friends are on the platform. Introducing even the slightest barrier to entry — much less a several hundred dollar one — makes it much less likely that a multiplayer experience is even possible.
This by extension means the timing question is an even more daunting one for Meta in particular. I do think that VR has real utility, but it will take time for that utility to be accessible on a cost-effective basis for enterprises and individual users; meaningful social experiences will take longer yet, simply because social experiences depend on the people you want to hang out with being bought in as well.1
This then is where I stand on VR and the metaverse concept, on Meta’s one-year anniversary:
I very well might be wrong on one or all of these points, in either direction. On one hand, maybe most people will never buy into the idea of putting a headset on; on the other hand, maybe Meta will figure out a go-to-market strategy that somehow communicates VR presence in a way that gets people to buy headsets in sufficient mass to make social experiences viable.
What is clear is that Zuckerberg in particular seems more committed to VR than ever. It may be the case that he is seen as the founding father of the Metaverse, even as Meta is a potential casualty.
You can read an interview I conducted with Zuckerberg and Nadella about yesterday’s announcement here.
Meta’s argument would be that these social experiences will also be accessible via your smartphone or PC, but that means giving up on presence, which is VR’s killer feature 
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