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Bursting the metaverse bubble—a deeply misunderstood vision of the future

The metaverse has gone from being the future of humanity to the graveyard of failed ideas in the blink of an eye. Where now for this deeply misunderstood vision of the future?

 Illustration: Nadia Mendez/ WIRED Middle East

Editor’s note: This is the third story of our series The Future of the Internet.
Just two short years ago the metaverse was all the rage. You couldn’t walk 10 paces without bumping into someone who was either setting up a virtual office or attending a concert in Sansar. Non-geeks were bemused by this fascination with a concept that most people could not define, yet tech giants, brands, consultancies, and pretty much everybody who should’ve known better jumped onboard and settled in for the ride.

At the heart of much of the initial hype was Decentraland, a virtual reality platform powered by the Ethereum blockchain. In June 2021, the auction house Sotheby’s opened a replica of its New Bond Street galleries to much fanfare, while Atari announced it was to launch a crypto casino in partnership with Decentral Games. Many others would follow, buying up plots of virtual real estate in the form of non-fungible tokens (NFTs) – virtual assets with ownership authenticated by the Ethereum blockchain. With real estate viewed as the foundation on which virtual experiences could be built, prices began to soar.

Then Facebook rebranded as Meta. Prior to that, most people had never heard of the metaverse, let alone dreamt of strolling around a virtual world in a pair of custom-designed NFT sneakers. But Mark Zuckerberg, the company’s CEO, set his sights on bringing the metaverse to life. Its defining quality, he said, would be “a feeling of presence – like you are right there with another person or in another place”. He even predicted a future where anyone would be able to “teleport instantly as a hologram”, enabling them “to be at the office without a commute, at a concert with friends, or in your parents’ living room to catch up”.

The world lapped it up. The financial services firm JPMorgan opened a virtual lounge in Decentraland; adidas rolled out a range of virtual gear; fast food chain Wendy’s launched a burger-fueled virtual reality (VR) adventure in Meta’s Horizon Worlds; and Gucci Vault Land sprang to life in The Sandbox, another virtual world powered by the Ethereum blockchain. Such was the buzz that the global management consultancy McKinsey predicted the metaverse would be worth $5 trillion by 2030, while Citi suggested it could become an $8 trillion to $13 trillion addressable market by 2030. Citi’s broad definition of the metaverse included everything from smart manufacturing technology and virtual advertising, to online concerts and cryptocurrencies.

Yet there was one problem. People, it turned out, would rather inhabit the Earth. Advocates of the metaverse will tell you this misses the point – that it represents a misunderstanding of what the metaverse is – but virtual worlds with visually unappealing graphics, poor user experiences, and no real sense of immersion are not places many of us want to be seen in, let alone hang out in. And so it has proven. Meta’s virtual reality platform Horizon Worlds has failed to attract anywhere near the numbers it was hoping to, while Decentraland has a paltry 8,000 active daily users; if that. Neither of them represent what the original proponents of the metaverse thought it would be. 

“I admit, in some way I was perplexed when the metaverse became the buzz word in the tech and marketing realm,” says Rasha Rteil, Managing Director of Hearts & Science MENA. “There was a compelling rush to absorb the economic notion of what the .com universe was bringing, namely a virtual extension of my world, my workspace, and the broader marketing and media sphere. While NFTs thrived on the virtual estate of this parallel world, the wild rise of the metaverse amplified people’s confusion about it and so began the ‘adverse’ of the metaverse. It seems it was more hype than actual tangible value for users. Did anyone actually ask people if they wanted to ‘live’ in a virtual world? Or fully consider the benefits and practicalities of it?”

The fall back down to Earth has been painful. Reality Labs, which develops metaverse-related technologies for Meta, reported an operational loss of $13.7 billion in 2022. This figure has been further compounded by additional lackluster results, including a loss of $3.7 billion in the third quarter of this year. In total, Meta has pumped $36 billion into Reality Labs since 2019, according to analysis by Business Insider, and has very little to show for it. Meanwhile, metaverse departments have been shuttered as the hype has revealed itself as nothing but hot air. Earlier this year, Disney closed its metaverse division, while Microsoft ended the life of AltSpaceVR, a social virtual reality platform it had acquired in 2017. The tech giant also laid off 100 members of its industrial metaverse team.

So what went wrong? “Too many players, no interoperability, poor user experiences, lack of defined regulations, and network performance that fell short of the requirements needed to sustain the development of the metaverse,” replies Paul Wallis, director of growth at Epsilon. What’s more, the initial hype, coupled with a lack of clear definitions and standards, also led to uncertainty and scepticism, adds Sandra Helou, the chief executive and co-founder of UAE-based MetaMinds Group, a metaverse and spatial web-focused company.

“What time told us (and quite quickly), is that we were on the brink of digital utopia and looking at just a really cool new way to waste time on the internet,” says Rteil. “In this virtual gold rush, it seems common sense and best practice got a little lost. Data safety and privacy were even less than an afterthought. The regulatory framework was another significant aspect that needed firming up to protect participants and investors, especially when the metaverse was actually not one but many clunkily connected virtual worlds. Interoperability became a concern and a deterrent.”

Facebook’s rebranding did achieve one thing, however. It put the metaverse on the map. “While Meta’s subsequent execution has been awful, their rebranding gave the metaverse legitimacy and showed that it was more than a few geeks building virtual worlds,” says Samuel Huber, the founder and CEO of Landvault, a company that provides corporations and creators with a suite of tools to build, deploy and monetize 3D worlds on the web. “One of the world’s largest companies was betting the house on it. This unfortunately created huge expectations for the space, and the backlash that followed. So it amplified the good by giving the metaverse mainstream awareness, and amplified the bad by creating expectations the industry couldn’t meet.”

Unrealistic expectations

Helou believes three main challenges emerged during the hype phase that followed Facebook’s rebranding as Meta. Firstly, speculative excitement led to a surge in investments and the creation of unrealistic business models. Over $120 billion was poured into metaverse technology and infrastructure in the first five months of 2022, according to McKinsey, and expectations were sky high.

“Early adopters and investors pumped massive amounts of money into metaverse projects, especially virtual land grabs, often with little justification for their sky-high valuations,” says Helou. “Pricing models must be based on real-world value and utility, not speculation. Rebalancing the industry is essential to re-establish trust, and foster a more sustainable and credible metaverse landscape.” These virtual land grabs included the sale of a plot of land in Decentraland for $572,000 in April 2021. Such a figure appears crazy today. In May this year, plots of land in Decentraland were selling for just $1,269.

Huber witnessed this hype and speculative excitement first-hand. The company’s metaverse revenue went from zero to $10 million ARR (annual recurring revenue) in three months in 2022. “This is not normal growth and it would be crazy to believe that it would be sustainable, because most brands entering the metaverse were chasing the hype and not building anything meaningful,” he says. “So, to us it was no surprise when we saw a dip in the first quarter of 2023 as the hype died down, leaving little utility for these brands (what the press called ‘the death of the metaverse’).”

Secondly, there was limited utility and adoption, adds Helou. “Quite simply, expectations fell well short of reality. Many of the early iterations of metaverse projects were simply gamified VR experiences with limited real-world applications. This meant user adoption didn’t keep pace with the investments and developments.” There were also technical limitations, with the technology required to fully realize the metaverse’s potential still in its infancy. Issues related to interoperability, scalability, and user experience also need to be addressed.

“The bursting of the hype bubble has been a positive development for the metaverse industry as it’s brought about a much-needed reality check,” says Helou. “Serious builders are now doubling down on solving these issues and have shifted towards consulting clients on ensuring their web3 presence adds bottom-line business value. It’s still not 100 percent, and as the market grows and so does competition, we will soon see who has understood the market needs to survive.”

What exactly is the metaverse?

A big part of the problem was public confusion around what the metaverse is. Prior to Facebook’s rebranding as Meta, it was loosely defined as a hypothetical universe of interconnected virtual worlds. Within this universe, people (their avatars at least) would be able to move freely between worlds, carrying with them any digital assets they owned and engaging in everyday acts of commerce (buying and selling goods, acquiring land) and enjoying virtual entertainment (attending gigs etc). Just how they would travel from one world to the next was never fully explained, but a portal of sorts would be required.

These virtual worlds, of course, already exist in the form of online games such as Fortnite, Roblox, and World of Warcraft, as well as virtual reality platforms such as Decentraland, Somnium Space, and The Sandbox. Movement between them, however, is currently impossible and is likely to remain that way – not only because of competition between the companies that create and run these virtual worlds, but because of the computing power that would be necessary to make it a reality. Nevertheless, the idea of a network of interlinked digital worlds was what many people believed the metaverse would look like. 

This has since changed, with divergent definitions of what the metaverse is. Individual platforms are now claiming to be metaverses. Decentraland, for example, refers to itself as a decentralized metaverse built, governed, and owned by its users. Elsewhere, the metaverse has simply become shorthand for enhanced online environments. In all instances, the metaverse is defined in the vaguest of terms, with references to virtual meeting rooms, concerts, and other forms of communal activity. In 2022, McKinsey went a step further, defining the metaverse as an “emerging 3D-enabled digital space that uses virtual reality, augmented reality, and other advanced internet and semiconductor technology to allow people to have lifelike personal and business experiences online”.

For many, the metaverse is not an enclosed virtual space decoupled from the physical world, but a blended reality environment. Central to this are VR, which allows individuals to interact with an artificial three-dimensional world via a headset, and augmented reality (AR), which layers digital information and imagery over the world around us. Exactly what this blended reality environment will look like is anyone’s guess. But as Helou states, the “metaverse is not a standalone technical solution, it requires the support and integration of the broader spatial web to bring it to life.” Helou defines the spatial web as the convergence of artificial intelligence (AI), AR, VR, the internet of things, NFTs, and blockchain to deliver seamless journeys and interconnected experiences.

“It’s a problem,” says Huber of the public’s confusion. “And was mainly created by the industry, which wasn’t aligning on what the metaverse is supposed to be. It is often conflated with VR, which is incorrect. Just like the internet, the metaverse can be consumed from various devices: smartphone, laptop, TV and also VR. There is also a lot of confusion with the web3 metaverse and virtual land, which is not necessary to power the metaverse. To avoid this confusion, at Landvault we talk about the 3D internet as it makes it more tangible for people.”

The rapid and ongoing evolution of tech hasn’t helped, adds Rteil. “New developments, applications, and concepts related to the metaverse are constantly emerging, making it challenging for individuals to keep up with the latest developments and understand the evolving landscape,” she says. “The metaverse needed serious demystifying to turn into a gold mine opportunity for investors, the audience and even brands, which still could be salvageable. Its value proposition never really went beyond the gimmick. Without consumers on board, businesses struggled to see the potential and the return on what could easily be a very significant investment. Meta sank $36 billion into this pipe dream and has very little to show for it. This has cooled the excitement of many would-be metaverse entrepreneurs. If Meta can’t make it work, then who can?”

Where is everyone?

Beyond the confusion lies the awkward reality that hardly anybody populates these virtual worlds. Despite a 2022 McKinsey report that stated “approximately 60 percent of consumers were excited about the transition of everyday activities… to the metaverse”, you’d be hard pushed to find anyone hanging out in a virtual office or shopping for digital fashion in a designer store. And yet Zuckerberg asserted that the metaverse would be populated by a billion people in an interview with CNBC in June 2022.

The reality is much different. When YouTuber Jarvis Johnson spent a week in Horizon Worlds this summer, he estimated the platform had no more than 900 or so daily users. This contrasted dramatically with the 200,000 claimed in a report in the Wall Street Journal in October 2022. Decentraland, meanwhile, has only 8,000 active daily users, according to Sam Hamilton, the platform’s creative director. Even that’s probably incorrect. Data from DappRadar suggested that, in October 2022, Decentraland had had just 38 active daily users during a 24-hour period in which the platform was monitored. Its highest daily user rate was 675.

The Sandbox doesn’t fare much better. As I type, its ‘see what others are playing right now’ feature reveals only a handful of players. Fifteen guests are in Gucci Cosmos Land; one is in the Temple of Dum-Dum; 28 are in Deja Vu 2; and none are playing The Monstrocities: Terra, Astro Archaeologist, or The Junkyard Dogs: Dungeon. According to DappRadar, The Sandbox’s lowest active daily user count was 522 during the same period in which it monitored Decentraland. Its highest active daily user rate was 4,503.

So is this the end of the metaverse? Ed Zitron, the CEO of EZPR, a US-based tech and business public relations agency, certainly believes so. Writing in Business Insider earlier this year, he said the metaverse was “headed to the tech industry’s graveyard of failed ideas”. Just in case he hadn’t made himself clear, he asserted that Zuckerberg had “misled everyone, burned tens of billions of dollars, convinced an industry of followers to submit to his quixotic obsession, and then killed it the second that another idea started to interest Wall Street”. That idea being AI. What’s more, both AR and VR have failed to live up to their early promise. Certainly, a critical mass of users has not yet been reached, despite Meta’s investments in Quest and the Ray-Ban Meta smart glasses.

Not all are so pessimistic. Huber believes the rise and fall of the metaverse is just part of the Gartner adoption cycle, whereby a ‘peak of inflated expectations’ is followed by a ‘trough of disillusionment’, before a ‘slope of enlightenment’ and ‘plateau of productivity’ take hold. “That happens for all new technologies,” he says. “It happened for the internet, VR, NFTs, the metaverse, and now AI. When cool new tech comes out, the first reaction generally is ‘this will change everything tomorrow’, followed by ‘actually this doesn’t work’ to a more measured ‘this will gradually change things for specific use cases, over time’.”

Landvault has seen specific use cases emerge in the retail, tourism, music, and urban planning sectors, with demand climbing back to 2022 levels, “but much steadier, utility-driven,” says Huber, without expounding on what those use cases are. Helou also stresses that the metaverse is not dependent on a single company, namely Meta, but “builders who understand the market and users and clients’ wants and needs”. These include Epic Games, the creator of Fortnite, and, indeed, companies such as Landvault and MetaMinds Group. 

“The metaverse is not meant to replace the physical world but rather augments or enhances its level of interaction and interactivity,” adds Helou. “The relatively low number of active users on platforms like Decentraland is due, in part, to the lack of compelling, real-world relevance and the fact that they are open worlds with a gamified approach which appeals to a specific market group. The key to the metaverse’s success lies in creating experiences that seamlessly integrate with our physical lives and provide value and utility.”

Looking to the future

So is the metaverse salvageable? “It was never in danger,” replies Helou. “What was in danger, and rightly so, were the unrealistic business models and hype that was created around them. And that’s not necessarily a bad thing as it’s in a sense forced companies to look inwards and rebalance their approach and objective within the industry and that was truly needed. Our focus has always been building the solid foundation needed for truly immersive and interconnected virtual worlds.”

Nevertheless, the term ‘metaverse’ has become largely meaningless. What is likely to emerge in its place is unknown, but Huber prefers to reference the 3D internet and Helou the spatial web. “The metaverse is already designed for mixed reality with the blending of AR and VR,” says Helou. “It will certainly continue to transform in line with the development of immersive spatial web technologies. The metaverse is simply the web3 layer that integrates these spatial web technologies, and enables virtual worlds to come alive. Just like we scan QR codes to access information or services in today’s web2 world, there will be new technologies that bridge our physical and digital worlds in the metaverse. As the metaverse continues to evolve, we can expect to see even more unforeseen innovations that push the boundaries of what’s possible.”    

Read this article in Arabic.

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