Meta's Inevitable Cloud

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Meta has a problem. Well, two of them, actually.<br>First, after years and years spent trying to diversify, their business is still almost entirely advertising-based. To be clear, it's a great business – one of the best ever created, in fact. It's a good problem to have, but it's still a problem. Because if that business ever slows... Look out below.<br>That leads to the second problem. The latest way Meta thinks they can fix the first problem is with AI. Sure, they'll use AI to super-charge the ads business, but ideally it will also unlock other businesses for them. Again, to diversify. Currently, they view it as the key to their devices strategy, led by their smartglasses. But they're also working on other products and ways to potentially monetize AI beyond just selling ads. But the problem here is that it's expensive to build out those AI capabilities. Like, insanely expensive. Like the most expensive endeavor in human history, perhaps.<br>Wall Street doesn't like this. Specifically, Wall Street doesn't like this for Meta. Why? That first problem. Because unlike their Big Tech peers also clearly determined to pour all of their free cash flow into the AI build out, Meta doesn't have an obvious, direct way to monetize the capabilities. Again, there are ads, but that's indirect. Amazon, Google, and Microsoft are all selling their AI directly.<br>Are you seeing it yet? These two problems have a single solution. It's not simple, but it is fairly straightforward: Meta needs a cloud business.<br>It's a notion and solution that's so obvious that I've been noting it for quite some time now. After Meta bought Manus late last year (before they were forced to un-buy them), it occurred to me that at least part of the play was to get Meta into the business of selling products to other businesses. That is, enterprise sales. Granted, Meta has been trying to do this for years – remember Workplace, their short-lived Slack competitor? – but nothing has really worked. Again, Meta has remained the ads-based social media company. But Manus was already working. And beyond their consumer angle, there was clearly a big business brewing in selling agentic workflows to enterprises. As I concluded that post:

This deal seemingly makes a lot of sense for Meta on a few fronts. And it also may point to the start of a renewed push into enterprise. Again, easier said than done, but don't be shocked if this is a wedge of sorts. If they can keep Manus expanding into businesses, we should see other Meta cloud offerings follow, putting them more in line with those aforementioned Big Tech peers. And perhaps easing some concerns Wall Street has with regard to their AI spend.

Well, again, Manus, sadly, didn't really work out for Meta. But not because the business or the strategy wasn't good – if anything, those may have been too good, to the point where China took one look at the deal and said essentially: "yeah, no." Honestly, Meta probably should have used the "hackquisition" method to try to do the deal, but again, they clearly wanted the Manus actual business, not just the employees and some "non-exclusive rights". But I digress... The point is that with Manus, you could see a path for Meta to get a toehold into enterprise sales and expand from there – perhaps all the way up to a true cloud offering.<br>A few weeks later, another bit of Meta news made this general game plan even more obvious, at least to me. As I wrote about the formation of "Meta Compute" – their formal AI infrastructure play:

When I read about this new initiative within Meta, I can’t be the only one who assumes it will eventually lead to a full-on Meta Cloud, right?

Again, it seemed fairly obvious, though a number of people pushed back on the notion. Specifically because it would be so far afield from Meta's core business – and a huge potential headache, going up against the aforementioned Amazon, Google, and Microsoft clouds. That's obviously true, and I noted as much – in particular how it has taken Google years and several micro-pivots to be able to effectively compete in the space. Why? Because for as massive as Google is, and as good as they have always been with infrastructure, they didn't have the muscles to really do enterprise sales. It took bringing in someone like Thomas Kurian from Oracle to make that happen. And he has made that happen. To the tune of $20B in revenue a quarter – fast approaching a $100B/year business for Google. That makes it nearly 20% of Google's overall revenue – and again, rising.<br>My point is simply that Google, a company once knocked as being a one-hit wonder thanks to their ads business – again, one of the best businesses ever created – eventually found a way to diversify. It was painful and took a long time, but it worked. No one talks about them being a one-trick pony anymore. Meta has tried many things to diversify – going so far as to change the name of the company to one of those bets that, at least...