The billions of dollars that once flowed into the metaverse have significantly diminished, leading to a notable decline in public interest. The concept, once heralded as the next big thing in technology, is now perceived as one of the most significant failures in recent years.
### Key Highlights
Mark Zuckerberg’s ambitious push for the metaverse began four years ago, but it has since been deemed a major technological flop. A primary factor contributing to this downturn is the emergence of generative artificial intelligence. Despite the overall industry slump, some projects are still showing strong development progress. Experts indicate that the sector is in a phase of distinguishing genuine projects from those that are not, gradually eliminating the less credible participants.
When Zuckerberg first articulated his vision for the metaverse in October 2021, it appeared to promise a digital paradise where individuals could engage and interact within rich virtual landscapes. The billionaire entrepreneur envisioned the metaverse as the next evolution of the internet, prompting significant investments aimed at bringing this vision to life. In fact, Facebook underwent a rebranding to Meta, symbolizing its commitment to creating a virtual realm based on virtual reality (VR) and augmented reality (AR). With Meta alone investing around $46 billion in the metaverse since 2021, it’s perplexing that the concept has not gained traction. High-profile events, such as concerts by stars like Sir Elton John and Travis Scott, showcased the potential of the metaverse, yet four years into this grand vision, the reality is starkly different. The funding that once flooded the space has receded, and public interest has waned significantly, failing to meet the initial lofty expectations.
### Decline Driven by Generative AI
Experts suggest that the rise of generative AI technologies, such as OpenAI’s ChatGPT and Google’s Gemini, has contributed to the metaverse’s decline. These AI models offer immediate and scalable business solutions, as noted by Irina Karagyaur, co-founder and CEO of BQ9 Ecosystem Growth Agency. Unlike the metaverse, which demands substantial investment in infrastructure, AI tools like ChatGPT, MidJourney, and DALL·E are readily accessible. Businesses and consumers are increasingly turning to AI for enhancing productivity and improving efficiency in content creation. This strategic pivot in venture capital is noteworthy; funding is now flowing predominantly into AI startups, while projects related to the metaverse are experiencing downgrades.
Herman Narula, CEO of the metaverse venture capital incubator Improbable, highlighted that the focus has shifted to AI as the “next generation of disruptive technology,” leading to a significant move away from the metaverse. He also pointed out that the term “metaverse” has faced criticism for being linked to speculative cryptocurrency hype, with many companies raising substantial sums only to fail in delivering on their promises. Furthermore, initial versions of the metaverse have not met expectations, often providing closed environments that limit user engagement.
Following Meta’s announcement regarding its metaverse ambitions, related tokens such as Decentraland (MANA), The Sandbox (SAND), and Axie Infinity (AXS) initially saw price surges. However, as skepticism grows regarding the future of the metaverse, these tokens have experienced drastic price declines, with drops of over 95% from their peak values since November 2021. On-chain data from Glassnode indicates that despite the volatility, many holders are gradually increasing their investments in these projects, suggesting that some see them as undervalued rather than failures.
### Hardware Hurdles
Charu Sethi, a Web3 expert and chief ambassador of Polkadot, expressed that the metaverse’s business model was not fully developed when it gained popularity. Major brands launched NFTs and high-priced virtual land initiatives, yet many users did not find sustainable value. For instance, platforms like Decentraland and The Sandbox have struggled to surpass 5,000 daily active users despite significant financial investment. Additionally, the high costs associated with advanced VR and AR headsets, along with complicated login processes, have further impeded the metaverse’s growth. Sethi emphasized that the high investment and risk associated with the metaverse are becoming increasingly unjustifiable, especially as AI offers quicker returns on investment.
In the race to establish a foothold in the metaverse, companies like Meta and Apple have introduced VR headsets that allow users to immerse themselves in virtual spaces. However, these devices come with high price tags, making them less accessible. The Apple Vision Pro is priced at $3,500, while Meta’s Quest 3 starts at $500. In contrast, AI tools like ChatGPT offer free or low-cost services, removing the need for additional hardware purchases. Karagyaur noted that the VR headset market has stagnated, as these devices are appealing only to a niche audience and have not captured the broader consumer market. The combination of high costs and the absence of a clear, sustainable profit model is challenging the viability of the metaverse.
### Industry Restructuring
Kim Currier, marketing director of the Decentraland Foundation, pointed out that the metaverse encompasses more than just VR and AR hardware; it aims to create virtual spaces for collaboration and social interaction. While advancements in technology like Apple’s Vision Pro and Meta Quest 3 have sparked innovation, users face the reality that wearing headsets for prolonged periods is impractical. Currier is interested in how AI can enhance the metaverse experience, viewing the rise of generative AI not as competition but as an opportunity to enrich virtual worlds and personalize user experiences.
Currier attributed the metaverse’s downturn to factors such as market bubbles fueled by unrealistic expectations, technical challenges, and shifts within the tech industry. She described the current phase as a necessary reevaluation of the industry’s value, facilitating a market correction that favors committed builders focused on genuine user needs. Karagyaur echoed this sentiment, stating that the metaverse is not on a path to extinction, but rather undergoing a significant technological transformation, evolving into an AI-driven application ecosystem that aligns with public demand.
As the initial hype fades, a more profound shift is occurring, emphasizing a transition from corporate-controlled environments to community-driven ecosystems where users shape their experiences. Platforms like Roblox, Fortnite, and Everworld are increasingly popular, empowering people to create, connect, and collaborate rather than merely offering escapist experiences. Sethi highlighted that Roblox has surpassed 80 million daily active users in 2024, demonstrating its leading role in user engagement, while Epic Games’ Fortnite continues to attract massive participation.
### A Glimmer of Hope
Experts have characterized Zuckerberg’s ambitious investment in the metaverse as a significant failure. In 2024, Reality Labs, the division tasked with developing Meta’s metaverse products, reported a staggering operating loss of $17.7 billion. Overall, Reality Labs has borne nearly $70 billion in losses over the last six years. Despite the setbacks surrounding Zuckerberg’s vision, certain projects within the ecosystem are defying the odds and experiencing growth. According to DappRadar’s “2024 Game Industry Report,” which highlights influential metaverse projects, the digital identity protocol Mocaverse and the blockchain gaming platform Pixels have achieved substantial breakthroughs in user engagement and commercial success through unique ecosystem strategies.
The Mocaverse initiative by Animoca Brands successfully launched the MOCA token and a decentralized identity system, Moca ID, attracting 1.79 million user registrations and integrating with 160 Web3 applications. The project has garnered $20 million in funding to enhance its ecosystem and aims to facilitate interoperability across gaming, music, and education. Meanwhile, Pixels, which debuted in 2022, has seen its daily active users exceed one million, indicating substantial traction in the gaming community.
DappRadar also noted developments in Yuga Labs’ Otherside metaverse, The Sandbox, and Decentraland, with Decentraland launching an upgraded desktop client to enhance performance and visual effects. The platform’s creator-centric economic model allows creators to retain 97.5% of their sales and earn royalties on secondary trades, a revenue-sharing model that stands out in the industry. However, it remains evident that without a compelling application to drive mass adoption, media interest has diminished, prompting companies that previously invested heavily in virtual worlds to shift their focus.
### Is the Metaverse Really Declining?
Karagyaur, the ITU expert, articulated that the future success of the metaverse hinges on its ability to integrate with existing industries rather than seeking to replace them. The next wave of digital technology will focus on enhancing reality instead of escaping it. Narula, founder and CEO of Improbable, stated that innovation rooted in genuine value will be critical for the metaverse’s revival. He emphasized that users must derive tangible benefits beyond superficial aesthetics. The metaverse concept must resonate with people’s fundamental needs for self-expression and fulfillment. While the flashy visions presented at Meta’s investor conferences may have faded, a more grounded and pragmatic approach to the metaverse continues to thrive. Narula highlighted that younger audiences are increasingly engaging with platforms like Minecraft, Roblox, and Fortnite, participating in rich virtual interactions and economies.
