The Metaverse is Falling Apart

Last year it seemed that all anyone could talk about was the metaverse.

Dozens of brands from Adidas to Disney, Microsoft, Tommy Hilfiger, Nike, and even Wendy’s invested in buying digital real estate in order to stay on the cutting edge.

Now the future isn’t so certain…

Recently, both Disney and Microsoft, two of Meta’s most promising partners in the space, pulled out of their metaverse investments, and I don’t blame them.

A recent report by The Block revealed the absolutely brutal numbers - only 20 to 30 people are actively trading property inside of Decentraland on a weekly basis which amounts to a measly $50,000. This is a huge hit to one of the darlings of the metaverse space which was seeing trading volumes in the millions in 2021 and 2022.

Similarly, data aggregator DappRadar found that Decentraland only had 38 “active users” over a 24-hour period 🤯

As recently as October of 2022, Decentraland was valued at over $1 billion, today it wouldn’t surprise many experts if it went bankrupt.

So why is this happening?

The Metaverse Perfect Storms Starts With The Business Model

This seeming collapse of the metaverse may shock some, after all, Zucks was so confident the metaverse was the future that he renamed the company to Meta.

Well, the metaverse is experiencing a perfect storm of fatal hits at the moment.

First, the metaverse has a business plan problem - no one is quite sure how to make money off of it.

Sure, brands bought digital land in order to build digital stores, that you can hypothetically spend money in to buy things, but this is still quite out there for most people. Because of that, many metaverse projects were mostly giant black holes in which research money disappeared.

When times were good, companies were happy to dump billions of dollars in the hope that they would stay relevant while building the next massive platform.

By this point, most companies understand the benefit of being at the cutting edge of a new platform. Some missed Instagram and then TikTok, they’re not making the same mistake a 3rd time.

However, as we all know times aren’t the best right now in the tech space.

This leads me to point number two...

Tech Layoffs Are Slaughtering Metaverse Departments

In November, Meta laid off 11,000 workers, and this month they laid off another 10,000. The metaverse department likely got gutted during these. If headcounts need to be reduced, it makes sense to do so in a department that’s not generating any money.

As I mentioned in the previous point, Meta is probably not alone in this.

Since the metaverse in general hasn’t figured out a way to generate sustainable revenue, most companies will likely pick these departments to lay off workers from, just like Meta, Disney, and Microsoft did.

In a tighter economy, these companies are having to scrutinize their investments more, and it becomes much easier to pull money out of the metaverse if there is another more promising place to put it…

AI Is The Sexier Bet At The Moment

If 2022 was all about the metaverse, then 2023 is already shaping up to be the year of AI

While both the metaverse and AI seem like crazy futuristic investments, there is a big difference - AI has a clear business model.

OpenAI alone is worth $29 billion and it’s much easier to see where that valuation is coming from when compared to metaverse projects since OpenAI charges users and other companies to use their proprietary technology.

And because there is a clear business model, investor money is easier to find.

Even Zucks isn’t immune to this, reports say that he's going through a “shiny object phase” and is doubling down on Meta’s own AI product.

Despite all these issues, I still think the metaverse will be a massive part of our lives in 10 years.

Money flows where investors think there is money to be made, and that’s just not in metaverse projects at the moment.

However, it’s important to remember that much of the metaverse is tied to crypto, so when crypto goes up, so will interest in the metaverse, just like in 2021 and 2022.

The next Bitcoin halving will likely take place in April or May of 2024, and historically this is a signal that another crypto bull market is around the corner, so it’s very possible that in a year or two we will see reignited interest in metaverse projects.

In addition, while AI is taking the wind out of the sails of the metaverse at the moment, it's likely that AI will actually help grow and develop the metaverse in the future.

Until then, the metaverse will likely remain a ghost town waiting to be rediscovered.