Most people probably never even heard of the metaverse before Mark Zuckerberg decided to change Facebook's name to Meta Platforms (META +0.33%) and go all-in on alternate reality. Even among tech-savvy people, a definitive explanation for what the metaverse is remains elusive, though it's loosely described as a world in which we socialize, work, and play virtually.
That hasn't stopped corporations from committing tens of millions of shareholder dollars to participate and for analysts to proclaim it a multitrillion-dollar opportunity over the next decade or so.
Yet maybe everyone's gotten just a little bit ahead of themselves on the metaverse's potential as companies are already putting the brakes on their participation in this virtual, artificial intelligence-driven space. It could be that the metaverse is fizzling out before it even gets started.
Image source: Getty Images.
A sea of uncharted islands
For all the hype surrounding the metaverse, it doesn't really exist yet -- at least not the vaunted universe we've been told will be the place where we can live a second life free from the constraints of reality.
Like other gaming companies, Roblox has created virtual worlds on its platform where its 40 million users, about half of whom are 13 years of age or younger, can interact with one another. Shopify has its own artificial world, Shopify Party, for virtual hangouts where people can socialize and play games, and, of course, Meta's Oculus Quest allows people to visit the metaverse through Venues on its Horizon Worlds platform.
And while there are numerous companies creating virtual worlds, others are looking to help populate them. Nike, for example, acquired RTFKT (pronounced "artifact"), a company that creates digital footwear, collectibles, and accessories, last December. Nike also partnered with Roblox to create the Nikeland virtual world.
Grand plans coming to naught
Despite the money being spent in the space, others are starting to have second thoughts. Match Group's (MTCH 0.17%) Tinder had thought the metaverse would be the next great avenue for online dating and would help it reach the next generation of people looking for love.
Last year it acquired Hyperconnect for $1.7 billion and subsequently envisioned the creation of Single Town, a virtual world where people can meet via avatars, but now it's scaling back its investment.
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CEO Bernard Kim told shareholders Hyperconnect is not working out as planned, and "given uncertainty about the ultimate contours of the metaverse and what will or won't work ... I've instructed the Hyperconnect team to iterate but not invest heavily in metaverse at this time." Match will need to evaluate the space more closely.
Earlier this year, Snap CEO Evan Spiegel disparaged Meta's metaverse plans as "ambiguous and hypothetical," and so far, it hasn't been a good investment either.
Late is worse than never
Meta lost $10 billion last year on its Reality Labs division that's tasked with building the metaverse, and it's lost another $5.7 billion through the first six months of 2022, a 35% increase. Zuckerberg has also said he doesn't think the metaverse will be consequential at all this decade, but he's "laying the groundwork for what I expect to be a very exciting 2030s."
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He's also cutting back the budget at Reality Labs as it abandons some projects and delays investing in others.
Ten years into the future is a long, long time in the tech world, and though having executives focus on future returns rather than what's happening next quarter is something to praise, Meta's metaverse investment may never pay off.
As economic conditions harden and consumers tighten their belts, companies may find spending money on extravagances like metaverse dreams are just too expensive for an uncertain payoff years into the future.
