Meta has struggled at selling anything other than ads. Will AI be different?

Meta is embarking on a new journey to diversify its revenue streams beyond traditional advertising, as CEO Mark Zuckerberg looks to artificial intelligence for promising results. This week, the tech giant announced the upcoming testing of two subscription services for its AI application, similar to ChatGPT, with initial availability in Singapore, Guatemala, and Bolivia. These paid offerings coincide with the launch of premium subscription plans for Instagram, Facebook, and WhatsApp, as well as enhanced verification services aimed at helping businesses secure their brands. At Meta's annual shareholder meeting, Zuckerberg hinted at the potential for a cloud computing division, which could lead to competition with industry heavyweights like Amazon, Microsoft, and Google. Historically, Meta has relied heavily on advertising, with nearly 98% of its $56.3 billion revenue in the first quarter stemming from this sector. While the online advertising market remains robust, the rise of AI technologies raises concerns about user engagement and the effectiveness of traditional platforms. Meta's past ventures outside advertising have met with limited success. The company’s Portal video-calling device flopped, leading to its withdrawal from the market, and despite acquiring Oculus for $2 billion in 2014, a standout VR headset has yet to emerge, resulting in significant losses for its Reality Labs unit. However, Meta is shifting focus to AI-powered smart glasses, building on the initial success of the Ray-Ban Meta glasses. Zuckerberg's previous foray into cryptocurrency with the Libra project faced regulatory hurdles, ultimately resulting in its dissolution. Selling social media services to businesses has also proven challenging, with the closure of the Workplace chat product announced just last year. Despite these hurdles, some analysts remain optimistic about Meta's AI subscription services, priced at $7.99 and $19.99 per month. Wolfe Research analysts project these subscriptions could add up to $3 billion in revenue by 2027, potentially rising to $16 billion by 2030. While this figure may seem small compared to Meta's annual revenue exceeding $200 billion, it represents a significant opportunity in a growing market. Max Willens from Emarketer suggests that Meta's success in online ads complicates its ability to sustain enthusiasm for new ventures, as they tend to be overshadowed by the dominant advertising business. He believes that the subscription services might succeed if they enhance the advertising ecosystem rather than serve as standalone products. However, establishing a robust enterprise cloud offering will require substantial effort, as Meta's focus has predominantly been on direct consumer engagement. Research director Shashi Bellamkonda emphasizes that Meta must invest in developing processes and manpower to compete effectively in the enterprise space, particularly against established cloud providers. Zuckerberg has not confirmed Meta's entry into cloud computing, stating it would only be considered if there is excess capacity from its AI investments, which are projected to reach between $125 billion and $145 billion by 2026. Forrester analyst Naveen Chhabra cautions that developing a competitive cloud service is a complex challenge, citing past failures of telecom companies attempting to leverage their infrastructure for cloud business. As Meta navigates this transition, the tech world watches closely to see if AI will forge a new path for the company.