In October 2021, Facebook changed its company name to Meta. The name change reflects the company’s considerable focus on the metaverse. The latter is undoubtedly the company’s long-term strategy to stay relevant. In the months following the name change, it appeared that the public was euphoric upon the prospect of living in the metaverse in the not-so-distant future. Likewise, the use-case avid crypto market quickly appointed the metaverse to become the next major application for crypto. Yet, it appears that no more than a year later people have completely forgotten about the metaverse, aside from Meta’s investors, who are hunted by the company’s $10bn spent on developing the metaverse last year. It seems the general focus has shifted away from a potential digital universe towards rising inflation numbers and the present global issues. Also, it does not seem that the technology of the metaverse is anywhere near mainstream adoption.
Metaverse - blending social media and virtual reality
The metaverse is a second but virtual universe, in which users are supposed to engage in vivid social interactions such as shopping, education, eating, and experiencing sports together with their family and friends. In other words, the metaverse is a blend between social media and virtual reality (VR) to bring social interactions into a virtual world accessible from everywhere in the world. As an example, instead of communicating over FaceTime, one might imitate one’s living room in the metaverse to feel closer connected to acquaintances living far away through virtual reality. It can also be to join a live spinning class, football match, or a concert from a front-row seat together with a friend. Other than social events, it can be used to form school classes with kids with diagnoses preventing them from appearing physically in class. In a professional context, the metaverse can be used to simulate a full working day with various tasks for a medical student.
By this time, the ultimate vision of the metaverse is to somewhat combine these use cases to form a second but virtual universe, in which you may be able to live your life. Based on virtual reality, the digital universe may partially replace the physical world; instead of visiting the real Old Bond Street, you visit the metaverse equivalent of Old Bond Street. Here, you visit the stores of Prada, Gucci, and Louis Vuitton. There is no queue in the stores, as assistance is offered instantly by an AI-based personal shopper. Following the purchase of a Louis Vuitton bag, you are invited to the brand’s fashion show in the metaverse later that day. With a single click, you invite your plus-one and attend the fashion show together, although your plus-one lives on the other side of the planet. While at the fashion show, you reschedule your appointment in the metaverse with a teacher about physics, as the firm offering those classes always have teachers available.
The ultimate vision of the metaverse offers greater service, more flexibility, inexpensive entertainment, and no transportation for users. For companies, the metaverse presents a more personalized interaction with customers, a greater marketing toolbox, and potentially cost savings because the firm may discontinue many physical stores and dismiss employees.
Here comes crypto
In the aforementioned virtual universe, you are likely to own items such as a plot or a house similar to owning digital items like equipment in games. In that way, you can somewhat recreate the actual world with the prestige associated with owning a house in a prominent area – just in the metaverse. Yet, there will likely not be a single standard for the metaverse, meaning many metaverses are going to exist. This indicates that there may exist endless streets as prominent as Old Bond Street in various universes, whereas there is a single Old Bond Street in the real world. This fairly dilutes the idea of substantial ownership in the metaverse as it raises doubt for brands like Prada, Gucci, and Louis Vuitton on which standard to bet on.
Nevertheless, in connection with the ownership in the metaverse, the use-case avid crypto market quickly seized the chance to appoint it as a use case for crypto. By handling these ownerships as non-fungible tokens (NFTs), the metaverse may more greatly offer authentic ownership. Instead of the property being an entry in a centralized database owned by a large corporation, it can be issued on a blockchain in the shape of an NFT to offer thorough ownership. This could possibly enable users to easily transfer NFTs across distinct metaverses. However, it seems that the crypto market forgot the metaverse as quickly as it was to adopt it, as the sale of virtual land has decreased by as much as 98% since last year, alongside prices declining faster than one can say “higher interest rates”.
The metaverse is nothing without virtual reality
In our view, it is important to distinguish whether the purpose of the metaverse is to be social or not. If the purpose is personal entertainment in VR, then it can easily be accomplished with present VR technology – and this has arguably been the case for years. In this regard, keep in mind that Meta acquired virtual reality headset manufacturer Oculus in 2014 before releasing its first headset in 2016, so the technology has existed for years now.
Yet, VR still has limited traction. Statista estimates that 6.1mn VR headsets were sold in 2021, so the cumulative installed base is at around 16.44mn units worldwide. In comparison, Apple sold 240mn iPhones in 2021. This means that few use VR for e.g., gaming, and other entertainment, although the technology is available at a reasonable price, particularly for gamers already equipped with a decent computer or gaming console.
The industry has arguably not matured to a point at which a sufficient number of high-quality games and other entertainment services are available. For instance, the fact that every Premier League game is not yet broadcasted in VR is not commendable. So, the industry has encountered the chicken or the egg paradox, in which few want to offer VR content, as the market is thus far rather small. The small amount of content leads few to acquire the necessary VR equipment.
The metaverse outlook
As activities without social interaction such as entertainment have not even gained notable traction in virtual reality yet, it is evident that the metaverse as a virtual universe is a long way from mainstream adoption. This is simply due to the necessary network effect for it to take off as a place to interact socially. For it to become a second universe, in which we are social, VR has to be much more mainstream, so we can interact with our relatives in the metaverse. This growth in VR must be driven by entertainment, which it has so far failed to deliver.
Plus, one might argue that the technology for social interactions is not yet compelling, and thus, the whole premise for the metaverse. Here, our attention must be turned toward the computer game Sims. The most visible product having come from Meta’s $10bn spend on the metaverse last year contains avatars of people, which could have been taken straight out of Sims 2. The latter was released in 2004. It must be a fair assumption that many would choose FaceTime over experiencing their relatives in a quality comparable to a video game from 2004. This even assumes you have the VR equipment, a decent computer, and the needed internet connection to handle this load.
Amara's Law expresses that we overestimate the effect of a technology in the short run and underestimate it in the long run. This might be the case with the metaverse, yet the metaverse as a second universe is likely far out in the future. In our view, within the foreseeable future, the most plausible outcome of the massive investments pouring into the metaverse is that personal entertainment gains steady traction in VR. Over time, this may open the door for the metaverse as a second and social universe.