In the 1992 novel Snow Crash, author Neal Stephenson coined a term to describe a place where human avatars interact with one another.
That term was “metaverse,” and since that time the word has become part of the lexicon as the concept moves out of the realm of science fiction and into everyday life.
A costly change
The company formerly known as Facebook (FB) – Get Meta Platforms Inc. Class A Report went so far as to change its name to Meta in October, as Chief Executive Mark Zuckerberg called the Metaverse “the next frontier.”
The Metaverse has been defined as a network of 3D virtual worlds centered on social connections, but Meta has encountered some significant obstacles on the way to that next frontier.
The company was rocked after Frances Haugen, a former product manager, accused the social media giant of putting profits ahead of the impact of hate speech.
The move was also costly, as Meta Platforms reported weaker-than-expected fourth-quarter results in February.
The results hit Zuckerberg squarely in the wallet as he lost $29.7 billion of his net worth, while his company lost nearly $237 billion in market cap a day after the results were released.
The company said its Reality Labs division lost $10.2 billion in 2021, more than double the operating loss it recorded in 2020 — $4.62 billion. In 2019, the operating loss was $4.5 billion.
And now comes the Security and Exchange Commission.
The agency recently ruled that Meta must allow investors to review and vote on a shareholder proposal that challenges the “social license to operate an emerging technology like the Metaverse” without fully understanding the potential risks and negative impacts .
Natasha Lamb, a managing partner of Arjuna Capital, one of the parties that filed the proposal in December, said, “The SEC’s decision is a victory for investors who seriously question Zuckerberg’s leadership and plunge into the Metaverse.”
“We value the views of our investors”
“This decision paves the way for investors to better understand the potential psychological and human rights risks of the Metaverse and to consider whether Meta should pump $10 billion annually into an emerging technology, especially when they so clearly fail to manage the risks on their core platforms.” ‘ Lamb told TheStreet.
She added that it’s important to keep in mind how important Meta’s linchpin is to investors.
“Meta stocks suffered the biggest decline in stock market history when they reported negative earnings growth last quarter, fueled by this $10 billion investment,” she said.
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In response, a meta spokesperson said, “We value the views of our investors and regularly engage with them to get their perspective. We look forward to continuing the dialogue, also at our Annual General Meeting in May.”
Meta opposed the proposal in its proxy statement, saying, “We believe we have the right approach for our Metaverse effort.”
“Given that we are already collaborating with numerous researchers, experts and advocates around the world to better understand the potential risks and mitigations that inform us in designing the products and experiences that are being developed, our Board of Directors believes that this is unnecessary,” the proxy statement said.
The proposal is unlikely to pass as Zuckerberg controls the voting shares. However, this does not mean that the controversy will go away.
“There’s a confluence of pressures that Meta faces, from antitrust litigation to whistleblower testimony to congressional hearings,” Lamb said. “It’s important investors have their say on what we’re doing with this proposal, but there are other factors Meta needs to respond to. We have been campaigning for better governance at Meta for the past 6 years and we will continue to do so.”
Kenny Ching, an assistant professor at WPI Business School, said that in general, “we don’t have much evidence for the merits or demerits of the metaverse because the phenomenon is not only nascent but also extremely complex.”
“The brakes are pumping”
“While there is some early research suggesting that the Metaverse environment may encourage toxic antisocial behavior,” he said, “this view needs to be tempered by the positive implications such as potential productivity gains through gamification and avoidance of physical distance.”
Ching said it will be interesting to see the results of the third-party assessment and subsequent legal development.
“While we should view the results with a healthy dose of skepticism,” he said, “the case itself will be a test of how society will eventually come to accept — or reject — the metaverse.”
In a way, Ching said, “the reactions to the case are probably more important than the ultimate findings.”
“However, my general prediction is that the growth dynamics of the metaverse will not be affected,” he said. “The results of the assessment are unlikely to be definitive given the complexity and evolving nature of the phenomenon.”
Justin Lacche, commissioner of the Omniverse Sports League, which is made up of four minor league sports teams that compete physically and in the metaverse, said there’s a long history of regulatory commissions “slamming on the brakes” when technology or new technology changes Developing paradigms very quickly.
“It’s very important for companies to work with regulators to demystify the metaverse and avoid unnecessary blocking just because of awareness issues,” he said.
For his part, Lacche said he had been impressed by many local authorities and regulators as the world unfolded during the Covid-19 pandemic.
“It’s in all of our interests as business people, technologists, those of us in the social sciences who want to democratize opportunities, to get quietly on the same playing field of understanding because then we can all move together quickly,” he said.