Weekly Digest: Facebook and Uncle Sam Go to War Over the Metaverse

Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up this week…Facebook buys another metaverse startup. 

Recently, we learned that Facebook, which renamed its parent company Meta last year, has acquired Berlin-based Lofelt, a haptic technology startup.  

Haptic technology replicates the sense of touch in a virtual setting by sending vibrations or applying force through a device. This tech is already used in Xbox and PlayStation video game controllers, which can vibrate when a player is attacked or falls, for instance. And it will be key to building out the metaverse, since it can give users the sensation of actually being inside a 3-D virtual world. 

Facebook has made several metaverse acquisitions recently…though the company is not always making these deals public. This acquisition only came to light in response to questions from The Wall Street Journal.  

It’s clear why Facebook wants to keep deals like these private.  

As we reported here recently, the company is also trying to buy a U.S.-based virtual-reality studio called Within Unlimited. But the Federal Trade Commission has sued Facebook to prevent that deal going through.  

The FTC claims, correctly in my view, that Facebook is trying to use its financial might to dominate the metaverse future. This is a strategy Facebook has employed again and again since it first emerged. Whenever a company has risen to challenge its dominance, Facebook has sought to buy them out, as when it acquired Instagram, WhatsApp, Oculus, and so many others. 

This monopolistic approach has likely impeded the development of the internet and the success of U.S. businesses. Perhaps if Facebook hadn’t bought Instagram, for instance, the company might have remained more dynamic and been better placed to challenge the current global market leader in social media, Chinese-owned TikTok. 

Now Facebook is trying the same tact with emerging metaverse companies.  

Perhaps it’s a coincidence that prior to being bought out by Facebook, Lofelt had announced a deal to improve haptic technology on devices running Google’s Android operating system. Now those plans have been scrapped. So, then again, perhaps not so much of a coincidence after all.  

Irrespective, given news of this new acquisition, the FTC is likely to place further scrutiny on Facebook’s metaverse ambitions. 

As I’ve always said, Facebook will ultimately fail in its goal. A centralized company—regardless of its dominance in this era of the internet, known as Web2—isn’t built to function in the decentralized Web3 internet that’s emerging. That’s where the metaverse will exist, and where crypto-specific companies will rule. Facebook will be the odd man out in that world.  

But Facebook is very, very rich. So, by snapping up all these startups and bringing them into its old, tired corporate structure, it may slow the development of the metaverse. Or perhaps open the door for Chinese companies to get ahead…as it may have done with TikTok.  

The FTC seems to recognize the dangers of this. Let’s hope its lawyers have the wherewithal to prevent Facebook from impending metaverse innovation. 

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Next up…a follow-up to the subprime mortgage debacle? 

You’ll likely remember, with all too much clarity, the sub-prime mortgage crisis and how in 2007-2008, it nearly collapsed the global economy. 

Sub-prime lending is the provision of loans to people who might have difficulty repaying. After that crisis, new rules were put in place to prevent sub-prime mortgages from wreaking such havoc again. But in recent years, we’ve seen the emergence of something not entirely dissimilar—non-qualified mortgages, or NQMs.  

NQMs use non-traditional methods of income verification. They were designed for people who might have trouble accessing traditional mortgages if, for instance, they are self-employed or have a checkered credit history.  

These mortgages are largely considered safer than the ultra-risky sub-prime loans that helped fuel the 2008 global financial crisis. But they are certainly considered riskier than standard mortgages…and that’s becoming a problem as interest rates rise. 

With the Fed rapidly jacking up interest rates in recent months, it’s making mortgages more expensive for prospective homebuyers and those on variable rate mortgages. This is suppressing mortgage demand…particularly among those who might apply for non-traditional loans like NQMs. 

Just recently, two firms that specialized in these loans shut down or went bankrupt—First Guaranty Mortgage Corp. and Sprout Mortgage. And more will likely follow. 

That’s not to say this is going to be a crisis on anything approaching the scale of the 2008 crash. It isn’t. NQMs made up only about 4% of the U.S. mortgage market during the first quarter of 2022. 

But the rising failure rate of these loans, and the collapse of firms that specialize in them, is another sign of growing troubles for America’s housing market. 

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Finally this week, skyrocketing energy bills are pushing small businesses in the U.K. off a cliff. 

British media has been dominated in recent weeks by tales of the massive energy price hikes that residential and commercial users will have to absorb this winter. 

In the U.K., residential energy prices are capped by a market regulator, Ofgem. The most recent cap took effect in April, and represented a 54% increase on the previous total.  

In October, a new cap is scheduled to come into effect…and was expected to further raise the cap from £1,971 ($2,270) to a staggering £3,549. That’s an 80% jump! 

But if residential customers are set for a bitter winter, then commercial users are facing a deep freeze from which few may emerge. 

Commercial energy users in the U.K. have fewer protections from regulators than residential customers. The New York Times cited one pub owner who must renew her annual prepay electricity contract in October. Whereas previously her biggest bill was £27,000, the best quote she can get now is £118,000. 

Few small businesses can afford these kinds of increases, which means the U.K. government and its new prime minister, Liz Truss, are planning to intervene in the market and dictate lower price caps. 

That should provide some short-term relief, but ultimately this kind of market invention is only going to increase the national debt and further skew the energy markets. Europe and the U.K. are heading into a tough winter… 

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday