Strategy Bites - Meta’s Interest in Eyewear
Strategy Bites are quick reads about strategy decisions on timely business topics. Have thoughts? Share them in the comments below.
The Context
This past week news came out that Meta, owner of Facebook, is in talks to buy a 5% stake in the eyewear giant EssilorLuxottica (per WSJ).
The name EssilorLuxottica might not mean much to you, but chances are you know several of their brands. They’re the parent company of brands like Ray Ban and Oakley in addition to managing the licenses for Chanel, Ralph Lauren, and more.
Estimates vary depending on the market you’re looking at, but one says that they control ~30% of industry revenue in US Eyeglasses & Contact Lens stores.
The Strategy
Why is Meta interested in eyewear? Their vision for the future centers around creating a new consumer category for the Metaverse - a collection of immersive virtual environments; a blend of physical and digital worlds.
This vision requires 3 elements:
Hardware - The devices through which the experience is delivered
Software - The lines of code that bring the experience to life
Customers - The people that want, and will pay for, the experience
This investment addresses elements (1) and (3) above.
Meta knows software - few companies have stronger engineering talent. On hardware, they’ve tested it, but not perfected it (Quest virtual reality headsets; Ray Ban smart glasses). For customers, they have social media consumers, not device consumers.
Partnering with the world’s largest eyewear maker brings manufacturing capabilities, eyewear brand credibility, and customers already interested in the product category. All of these are critical to pursuing their strategy to build out the hardware and software for the metaverse.
Meta has already piloted this partnership by co-developing a product line of smart glasses with Ray Ban. This move suggests that they’ve seen enough success to grow the relationship.
My Perspective
I don’t share Meta’s broader strategic vision for the Metaverse for a couple reasons:
I don’t see a large addressable market for immersive or augmented reality experiences
The need for person-to-person connection is growing, not shrinking
The use case is limited
I can’t figure out whether the eyewear is supposed to be indispensable (think iPhone) or fun / niche (think VR headsets)? Is it another accessory (Apple Watch) or the accessory (I don’t need my phone)?
If niche, my point above about the addressable market stands.
Meta is too big to build for anything but giant markets. Think about it - Meta could build a $100B category (larger than 99.9% of public companies!) and it would contribute <10% growth to their market cap.
At the same time, I can’t see a path to the product being indispensable because there are too many fundamental barriers in place for this to be true.
To name a few obvious ones:
There’s no need for sunglasses when it’s cloudy or dark outside, limiting its usable time
~35% of American adults don’t wear glasses and a big segment of glasses consumers - people that are older - are less likely to adopt a new technology. (Yes, Americans aren’t the only market, but they’re a very large one)
If I can’t use a product always or consistently like a phone or watch, then it has to be defined as a “nice to have” product.
Which brings me back to, if smart glasses are a nice to have product, what can they uniquely do that adds tangible value to hundreds of millions of consumers (and that they’ll pay for)?
Maybe I just don’t get it - that’s fine. I might not be their target customer. But for a company with a $1T+ market cap, they need to build big to see a material business impact, and building big means reaching hundreds of millions of potential customers.
Zooming out, I’m very interested in experiencing augmented reality, but I’m not interested in leaving my real world experience consistently and for long periods of time. This thesis that (hundreds of millions of) people will regularly want to do this would need to be true for the strategy to prove out.
I think of AR and VR like a movie theater. A moving theater is an experience. But, that experience is timebound and special, not something I’m going to do everyday.
The Bottom Line
Since Meta is already all-in on their Metaverse strategy, the move to invest in a leading eyewear company is logical and sound. Plus, the risk here is relatively low. A ~$5B investment is less than half a percent of Meta’s market cap. A complete failure would effectively be a rounding error.
I don’t see the path to the broader strategy working, but in the context of their strategy, this move is a low risk / high reward situation.