News Analysis
Mark Zuckerberg recently took to Instagram to talk up Meta's ambitions for AI. One topic was noticeably absent from the video: the metaverse.
Meta has developed a significant generative AI strategy over the past two years, so there is nothing particularly noteworthy about Zuckerberg discussing it — except for the fact that Meta has bet (and lost) billions of dollars on his vision of the metaverse.
The lack of results understandably concern Meta's investors, but recent research by Crunchbase indicates the problem applies to the industry as a whole, with Meta’s issues merely being the most visible example.
The research found spending on the metaverse and adjacent products hit a multi-year low in 2023. Few investors are backing the new startups creating the next generation of virtual worlds.
The largest late-stage venture round in the space last year was an $82 million Series D for Augmedics, according to the report, with no U.S. rounds of $100 million or more in 2023 for consumer-facing companies developing virtual worlds.
So is interest in the metaverse waning, disappearing ... or is it just evolving into something else?
A Revaluation, Not a Death Knell
The fall off in venture financing is a strategic move rather than an abandonment, according to Blueshift co-founder Jan Chapman. The original excitement surrounding the metaverse raised expectations, which the market is now tempering.
Instead of concentrating on wide-ranging consumer activities, organizations are now concentrating on useful uses of virtual and augmented reality in niche markets like education, healthcare and industrial design.
"This revaluation suggests a shift away, rather than a complete rejection of the metaverse idea and toward the integration of these technologies where they provide real value,” Chapman said. “The trend we are seeing now is the result of developing technology finding their most useful applications naturally.”
Agora's Vanessa Mullin, agreed, saying the issue is one of perception. Although attention may not be on the metaverse per-se, interest in the concept of more immersive experiences and their applications is still expanding, she said.
She pointed to Apple’s release of Vision Pro as an example. The shift in language towards AI and "spatial computing" signifies a shift in terminology more than an end for the metaverse.
While focus may be elsewhere, it is not replacing the metaverse, but rather will help drive us closer to the end state that the metaverse promises, she continued. “There are still lots of folks building and working towards the end goal, I believe that the shift in language has just killed the initial ‘hype’ of the M word — but it will always be the end goal.”
Related Article: Meta Doubles Down on Mixed Reality and AI at Connect
Overly Ambitious Initial Timelines
The drop in venture funding in 2023, particularly for consumer-focused startups in this space, suggests a shift in market sentiment as AI blows up, said Breezit CTO Lukas Junokas.
The decline doesn't necessarily mean organizations are abandoning the metaverse for good, he continued, but rather they're recalibrating expectations.
"The initial hype around the metaverse led to inflated expectations and perhaps premature investment in technologies that were still in their infancy," he said. "As the novelty wore off, investors and companies are becoming more discerning. And it is understandable. Business always follows the next hot thing."
He shares Mullin and Chapman's belief that the concept holds immense potential, particularly in applications like remote work, education and specific segments of entertainment and gaming.
However, its broader adoption and monetization will likely take longer than initially anticipated. It might take years before it is possible to integrate VR and AR in a way that organizations can affordably and reliably use it.
“Basically, while there’s a slowdown in funding and enthusiasm, it’s more of a strategic retreat rather than a wholesale abandonment,” he said.
Related Article: Meta's Quest Pro 2 Might Be Cancelled, But the Metaverse Marches On
How to Justify the High Cost of Entry
Emerge Digital's Tom Henson believes the investing downturn reflects wider concern with AR's potential for the workplace, although he's quick to note it is not an abandonment of the metaverse concept.
The drop in venture funding signals a broader sentiment in the tech world that caution is needed around the metaverse. What we're seeing here is a strategic recalibration of how immersive technologies are being deployed and valued.
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Henson pointed to the noticeable shift over the past year away from the pursuit of fully-fledged virtual reality experiences for work, towards a more nuanced, mixed reality approach. The reality is, he said, that the practical applications for completely virtual worlds are currently limited, with viable use cases including HR and process training, health and safety training, employee wellbeing initiatives, and virtual meetings.
Innovative businesses are exploring these niches, but it raises the broader question: why strive to immerse ourselves in entirely virtual universes when we can just interact with our own world?
Moreover, the economic aspect cannot be overlooked. The cost of high-quality virtual reality headsets — with prices often exceeding $500 — remains a significant barrier to widespread adoption within businesses, Henson said.
The financial hurdle underscores a larger issue within the tech industry: the need for accessible, cost-effective solutions that do not compromise on delivering tangible value to businesses and their operations, he said. "While the fervor around the metaverse and fully immersive virtual worlds may have cooled, the exploration of mixed reality presents a promising frontier."
“It offers a more balanced approach, integrating digital innovation with our physical environment. The focus should now shift towards developing affordable, impactful technologies that enhance, rather than escape from, our reality.”