Reports of the metaverse’s death have been greatly exaggerated.
I’ve seen too much negative news coverage about the metaverse in the last few months, including articles like this one:
Listen, I get it – there are few widely adopted use cases, it’s a funny word that became supremely buzzy the last few years, and several companies have announced a change of plans. But let’s not get caught in a negative pile-on. To resist that urge, let’s start by defining the term, and then we’ll review the case made by the WSJ.
Defining the Metaverse
Here, I’ll rely on Matthew Ball, who wrote a book about the Metaverse and has been featured all over the place (ex. NYT, Bloomberg, The Economist) as an expert on the subject. Here’s his definition:
A massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.
Is that all one sentence?! Not to worry… here are a few bullets from me to help unpack the definition:
Massively scaled – needs many worlds created by different groups
Interoperable – can move data and content from one world to another
Real-time rendered – the metaverse is live, not recorded and played back
Virtual worlds – could be totally fake, could draw influence from the real world, or could copy the real world (ex. A “digital twin” of a Ford factory to help track production)
Persistently – you can’t hit reset and clear memory every once in a while; it’s always running
So what?
I’m bringing up definitions to emphasize two points:
The metaverse isn’t a single-company job. For it to be interoperable, with different worlds, you need multiple companies (ideally, many of them) to participate, creating those worlds.
We aren’t close. We need internet and computing speeds to be orders of magnitude faster to support a “persistent” and “real-time rendered” metaverse. Right now, our frontier is Fortnite, where 100 players inhabit a detailed world for 20 minutes of battling. Then it resets.
In the meantime, companies can still score minor victories by having popular games, tinkering with new tech, and finding the “lane” they want to play in moving forward.
The Wall Street Journal’s Case
In summary: They argue the metaverse was a flash in the pan.
I think this is a bad take, and I’ll break down why – point by point.
Point #1: The Metaverse has essentially arrived, but it’s not popular.
As we just covered in the “definition” section, this couldn’t be more wrong. We need several technological leaps before the metaverse can be fully realized. If we do see individual companies gain traction with a specific world or a specific game before that, that’s just gravy. But until then, of course it’s not popular! It hasn’t arrived.
Point #2: Disney shut down its metaverse division.
Thankfully, they do point out that the shutdown comes amid a leadership shake-up and broader restructuring. But they miss the bigger picture. First, Disney doesn’t need to be a first-mover in the metaverse. Their superpower is monetizing creative content, as they’ve done with parks and Disney+. They can afford to let someone else do this costly innovation, then be a fast follower. Second, Bob Iger, who retired and then came back as CEO, replacing Bob Chapek, immediately had to battle an activist investor (Nelson Peltz). It’s easy to score points by undoing the “excesses” of your predecessor, so Iger dismantling Chapek’s nascent metaverse unit is a no-brainer.
Point #3: Microsoft shut down its VR platform.
First, nearly all tech companies are laying people off and shuttering teams. Even Microsoft competitor Amazon, a behemoth with a huge war chest, is making cuts inside of AWS, it’s cash-cow-cloud-business. So we shouldn’t be surprised to see Microsoft’s CEO Satya Nadella making strategic cuts. Second, they still have several metaverse bets in play! One is the HoloLens augmented reality headset, for which the US Army signed a 10-year, multi-billion dollar contract. Another is Microsoft Mesh, announced in mid-March 2023, which introduces options for VR meetings and 3D avatars that will connect to Office applications like Microsoft Teams. Honestly, Mesh seems much more strategically aligned with Microsoft’s position as a business and productivity juggernaut.
Point #4: Meta is cutting down its metaverse budget, and is more focused on AI.
As evidence of the increased focus on AI, they point to word counts in the yearend 2022 earnings call. It should go without saying, but actions and spending matter more than words. CEO Mark Zuckerberg has teams of PR people helping him craft statements, and AI has a ton of positive market momentum right now. Meta’s stock had gone from ~$220 in May ’22 to ~$90 in Nov ’22, because of slowing user growth for Instagram and Facebook and the enormous investments he was making in the metaverse. Of course he’s saying whatever he needs to say to help calm investors. But during that same investor call (call on Feb 1 2023), he announced Meta had $13.7B in operating losses from investing in the metaverse, up from $10.2B in 2021. They aren’t slowing down… they’re ramping up.
Wrapping Up
Companies are still finding their lanes, testing what works best, and moving towards long-term metaverse goals. We still need years of improvements in processing power and internet speed for any single “virtual world” to be effectively created, and we need multiple companies to successfully create these worlds before we approach anything resembling the metaverse as defined above. Therefore, we shouldn’t take naysayers seriously, yet. Saying tech companies are ditching the metaverse is like saying car companies are ditching flying cars. We are way too far away.
At the same time, we shouldn’t ignore how important and lucrative it might be to launch the first widely adopted “virtual world”. Being the first and best to a new platform is the stuff of legends (cough.. Bill gates and the PC at Microsoft…. Steve Jobs and the iPhone at Apple…). That carrot is juicy enough to entice any tech CEO, regardless of how many sticks short-term investors swing at them.