In 2021, Bloomberg boldly asserted that the Metaverse presented a US$800 billion opportunity. McKinsey raised the bar to US$5 trillion. Not to be outdone, Citi gave a jaw-dropping figure of US$13 trillion.
These staggering evaluations occurred against the backdrop of institutional soothsayers placing their bets on the metaverse lifestyle. Their hope was for the metaverse to gain traction among young Millennials and Generation Z to become the next economic growth engine.
Having missed opportunities with AI-driven content curation and video content sharing pioneered by TikTok, Mark Zuckerberg was determined not to overlook the next major trend. This resolve crescendoed with the rebranding of Facebook to Meta and putting fortunes on the line to reshape his company under this new identity.
Other major tech players, including Alibaba, Snap, and Shopify, quickly followed suit to capitalise on the hype. From an industry-wide perspective, it seemed like a surefire strategy, and to the average observer, the metaverse rocket was poised for takeoff.
What was anticipated as a stellar launch gradually fizzled. Meta suffered losses exceeding US$40 billion. Decentraland’s virtual property, once commanding a premium, plummeted by 90 per cent, prompting a mass exodus of buyers.
Industry giants such as Microsoft, Disney, and Walmart hastily backpedalled their metaverse forays. If these indicators were likened to a patient’s vital signs, its obituary would be ready for the morning papers.
Remarkably, in the wake of these setbacks, fresh contenders have emerged, spearheaded by Apple and Nvidia. Aside from the dubious lucidity of their decisions, the looming question remains: will their inaugural endeavours prove triumphant, or will they falter like many before? Ultimately, their success hinges on their ability to avoid similar pitfalls that have derailed past attempts.
Greed before the sound judgment
On September 26, 2022, Walmart pounced onto the scene with the launch of two virtual spaces in Roblox called Walmart Land and Walmart’s Universe of Play. According to William White, chief marketing officer of Walmart US, they were focused on “creating new and innovative experiences that excite”. With A-list promotion by Noah Schnapp, vibrant cartoony designs, and platformer gameplay reminiscent of Super Mario, their gambit was quite the tour de force.
Nevertheless, player messages like “making a toy wish list has never been this fun!” and catchy names for virtual experiences such as “Electric Island,” “House of Style,” and “Electric Fest,” gave rise to uncertainty on how these experiences would resonate with adult audiences.
Then there was suspicion, particularly given that 25 per cent of Roblox’s daily active users are under the age of 13, and this same age group is prohibited from accessing other platforms like Decentraland and Meta Horizon Worlds.
Also Read: The XR revolution: A glimpse into the immersive Metaverse of education and beyond
In reality, Walmart had crafted a new form of retail bombardment, targeting what they referred to as “young shoppers”—an unsettling euphemism for “children”. Roblox just happened to be the ideal platform to familiarise the Walmart brand to the youth. In hindsight, the ensuing backlash was entirely expected.
Only six months after launch, Walmart shuttered Universe of Play amid allegations of engaging in “manipulative stealth marketing” targeted at minors. These accusations were brought forth by reputable watchdog organisations like Truth in Advertising and the Children’s Advertising Review Unit.
Also, in the crosshairs, Roblox faced criticism for not adequately disclosing third-party advertising in a way that children could easily understand, further highlighting concerns about the industry.
In the absence of regulatory frameworks and watch groups, consumers would be left to the mercy of corporate greed associated with unfettered capitalism. Fortunately for lawful societies, safeguards are in place to protect the vulnerable. The lesson is obvious and bears repeating: Companies must prioritise ethical considerations and social responsibility over profit, or they risk eroding their own brand image.
Rushing into mistakes
Throughout much of 2022, Mark Zuckerberg’s journey into the metaverse became a subject of both ridicule and notoriety. What numerous publications had in common was their criticism of his roughshod decisions regarding Horizon Worlds, which was imagined to be a virtual reality ecosystem that would attract millions with hosted events, games, and social activities. But with only a monthly user base of 200 thousand, the oft-quoted Facebook motto, “Move fast and break things,” was suddenly losing its touch.
Mark’s impatience is justifiable, considering the challenges that Meta has been facing. On one end, TikTok is rapidly attracting a younger user base, diverting their attention from Facebook and Instagram.
On the other, Apple’s privacy changes have effectively wiped out billions of dollars in advertising revenue overnight, leaving Meta in a precarious position. It is hard to imagine how anyone would have deviated from Mark’s action under the pressure of this squeeze.
By the time of its rushed release, Horizon Worlds drew criticism for lacking parental controls, safe zones, and even lower extremities for virtual characters. The shortcomings were so severe they had a dampening effect on workforce morale.
When surveyed, only 58 per cent of the 1,000 Meta employees claimed to understand the company’s metaverse strategy, and a significant number hadn’t even owned or set up VR headsets.
None of these red flags had deterred Mr. Zuckerberg from pouring billions into Reality Labs and Oculus—both Meta subsidiaries positioned at the soft and hard front of the metaverse. These rash decisions also drew prominent criticism, including that of John Carmack, renowned for his work at ID Software and former role as the Chief Technology Officer of Oculus.
He has since expressed his dismay at the combined US$10 billion loss in the AR and VR divisions alone, which made him “sick to my stomach”. However, according to Mark, these setbacks were an acceptable part of a “very long-term bet”.
Indeed, the metaverse venture has become far more protracted than Zuckerberg was comfortable with. Confronted with an unforthcoming user base and lacklustre revenue, his response has been a shift in focus to other endeavours, such as Meta’s Twitter clone, Threads, thereby returning to the familiar role of emulating his rival’s success, rather than bungling his attempts at becoming a forward-looking visionary. At least, that is the case for now, as his recent Forbes interview indicates he still believes the metaverse “is going to be very exciting over time”.
Whether or not he will ultimately succeed with Horizon Worlds is still uncertain since the outcome is not solely within the control of any single entity. It will require a collaborative effort from the entire industry, including businesses and customers, all working together to adapt to the ever-evolving metaverse landscape.
The point is that impatience to be first to market will lead companies to “jump the gun” by prioritising hasty implementation over the methodical cultivation of broad market appeal.
The costly proposition of staying tone-deaf
In 2021, Sotheby’s unveiled a digital replica of its London headquarters located in Decentraland, complete with a digital greeter resembling their London commissioner, Hans Lomulder.
The purchase and construction of this virtual plot played a pivotal role in their broader strategy to enter the market for selling crypto-art masterworks. Their curation rapidly gained prominence with the showcasing of renowned NFT collections such as CryptoPunks, Bored Ape Yacht Club, and The Fungible Collection.
On the broader stage, Sotheby’s was just one of many prominent businesses putting their stakes in the wild digital frontier. Other notable entrants in Decentraland, like UPS and Samsung, have also bid up property prices from thousands to millions of dollars.
Also Read: Revolutionising education: Exploring the metaverse’s uncharted potential
Notably, prominent figures like Snoop Dog and German fashion designer Philipp Plein have made significant investments, with the latter purchasing a US$1.7 million property.
Judging by the frenzy of buying activity and property development, the Decentraland spiel was working. By cleverly limiting the number of land plots carved out of distinctive geographic locations, they manufactured an artificial sense of scarcity.
Meanwhile, landowners had to trust the developers to honour this scarcity tactic and resist the temptation to expand or inflate virtual real estate. As property prices continued to rise with virtual construction underway, both sides were incentivised to maintain this charade.
It is undeniable that limited supply coupled with brand and celebrity endorsements constituted a shrewd business strategy for Decentraland. It was effective for so long that everyone ignored the elephant in the room: the fact that all this growth and enthusiasm was never fueled by user engagement or expenditure.
A more precise portrayal of the economic activity in Decentraland was that of virtual property speculation. This all-out “land grab” was triggered by the surge in crypto prices, with average land parcel prices reaching a record high of US$37,238 dollars in February 2022.
Fourteen months later, this superficial buying frenzy imploded, with average parcel prices plummeting to US$1,250. In terms of overall market capitalisation, Decentraland had reached its zenith at US$8.91 billion and then nosedived to a mere US$550 million in one year, constituting a 94 per cent wipeout. Compared percentage-wise, the losses of the 2008 housing crisis looked like a drop in the bucket.
Decentraland investors have come to realise that the valuation of their assets was not supported by actual consumer demand. In the age-old tussle of productive versus speculative economies, the tangible results of the former usually prevail.
Thus, companies need to prioritise value creation based on the mainstay of customer satisfaction. Virtual value can be derived from market activity in commerce, entertainment, education, and socialisation. Anything else is likely the excess of a frothy market or a house of cards built on unsound principles.
A turnaround in the making
The success of the metaverse hinges on more than just a smorgasbord of marketing and feature gimmicks. Brands and organisations must adopt long-term visions that align with the core principles of the metaverse and develop sound strategies to match.
To truly engage users, there needs to be compelling lifestyle components to attract and retain participants. In addition to the resource-intensive nature of this endeavour, it demands a substantial investment of time and patience.
Hence, it would be more prudent for businesses to take a bite-sized tactic to build the metaverse by scaling horizontally, not vertically. Whereas the vertical approach is focused on building an omnipotent metaverse to attract users from all walks of life, the horizontal approach works from the grassroots by introducing select metaverse features to preexisting users in their respective ecosystems and holdouts.
An example of this horizontal strategy can be seen in what Apple has in store for its Vision Pro device and its slew of featured apps. By integrating social into the company’s rich ecosystem of existing apps and encouraging developers to do so as well, Apple is allowing users to share their existing activities with family, friends, and acquaintances.
For instance, SharePlay is incorporated into Apple TV, Apple Music, and Photos to facilitate shared experiences through FaceTime. Which Apple believes will become an expected feature in the majority of visionOS applications. While SharePlay does not meet the strictest definition of the metaverse as a three-dimensional online environment, in terms of interconnectivity, it is a potential game-changer.
On the industrial front, Nvidia is making strides with its Omniverse platform by forging strategic partnerships with companies like Foxconn and Lockheed Martin. Through these collaborations, they aim to establish Omniverse as the central hub for digital twinning. The customers in this context encompass not only corporations and businesses but also their associated workforces and automated systems.
Digital twinning, in this regard, offers distinct advantages by creating virtual facsimiles of complex systems, including traditional manufacturing, lights-out factories, cobot workspaces, and more.
These models provide crucial real-time data and predictive insights, enabling the ongoing optimisation of production processes while maintaining high safety standards. Considering its numerous benefits, the Omniverse platform is a compelling application of the metaverse for manufacturers striving to remain competitive.
Rather than constructing an all-encompassing metaverse and trying to lure customers in, Apple and Nvidia are flipping the script.
By promoting metaverse features to existing customer bases in their fragmented environments, they are actually doing more to unite everyone in centralised, social and interactive virtual environments. While their ingenuity does offer glimmers of hope, only time will reveal the efficacy of their strategies.
For now, unless the industry as a whole moves away from outmoded concepts, it runs the risk of descending into what can be described as a Churchillian conundrum. To paraphrase, one can always count on corporations to do the right thing only after they have exhausted all other options. For small- to medium-sized companies lacking the flush war chests of big tech, being guilty of that truism — even once — may be a bridge too far.
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