In Today’s Global Environment, Metaverse Efforts Need to Focus on Foundational Building Blocks, Rather than Spectacle

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By Michael Inouye | 3Q 2022 | IN-6629

Even in these early stages, the metaverse is facing an identity crisis. Skeptics are quick to point to troubles for market leaders like Meta and Web3, in general, as key indicators that the metaverse is in trouble or over-hyped, but these opinions view the metaverse market and opportunity too narrowly. The metaverse needs to transcend the image fixated on virtual worlds and spaces and focus more on the developments occurring in interoperability and enhancements to preexisting market trends through enabling technologies. This is especially critical in challenging economic environments that will see reduced spending on riskier and longer-term visions.

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The Metaverse's Image Problem: Investments and Attention Continue to Focus on Leading Edge Experiences

NEWS


The metaverse has an image problem and this contributes greatly to the disparity in future market expectations and even definitions of the metaverse; it is, after all, hard to assess market potential when a guiding, singular definition does not yet exist. This is problematic because it will cause some companies to miss out on early metaverse opportunities (and need to play catchup later), while others will invest too much, too early in the hopes of capturing as much of that first mover advantage. This is not to say there is no common ground at all. Everyone accepts that the metaverse speaks to Three-Dimensional (3D) and virtual at some level and how this interrelates to the real/physical world, but we all come into this market from different perspectives and this impacts the views of the metaverse. Some come more from a Two-Dimensional (2D) bias, while others (e.g., those involved in the video game industry, simulation, and digital twin) already have strong ties to 3D.

Many consumer-facing companies (outside of gaming) come from a stronger background in the 2D realm (text, images, video). Their interpretation of the metaverse, therefore, tends to be more 3D world-centric, in contrast to the enterprise sector where the focus has been more on collaboration and interoperability. Samsung, for example, recently announced its new metaverse space in Roblox’s “Space Tycoon,” which targets younger audience to interact with Samsung products and its brand. Similarly, social networking efforts like SK Telecom’s ifland (and soon Deutsche Telekom), Naver’s Zepeto, Meta’s Horizon, etc. all focus on virtual worlds/spaces. Even ByteDance, which acquired Virtual Reality (VR) Head-Mounted Display (HMD) company Pico, recently acquired PoliQ, the company responsible for the app Vyou, which allows users to create virtual avatars. The founder of PoliQ (Ma Jiesi) was also named the head of social center development at Pico, which suggests that ByteDance will push further into the virtual worlds/spaces from its current specialty in short-form video (Douyin and TikTok). This focus on virtual worlds also puts an overabundance of attention on Web3.    

The focus on virtual worlds has manifested itself further in the hype around virtual land, Non-Fungible Tokens (NFTs)/digital assets, and cryptocurrencies. Blockchain and crypto have also coalesced around the term Web3, which diverges from the earlier interpretations of Web 3.0 as a semantic web. Web3 does carry some common elements as the metaverse, such as decentralization, but at a more pervasive level than what some believe is necessary for the metaverse. Many Web3 proponents also view the next evolution of the Internet as a way to redistribute wealth and value more equitably throughout the value chain, including to the end users. While there are those who have come to view Web3 as intrinsic to the metaverse, there are just as many against it. The Institute of Electrical and Electronics Engineers (IEEE), for example, recently held a virtual event where the metaverse lead expressed his opinion that Web3 is not required for the metaverse and, in fact, would be better served to move further away from blockchain and crypto. And yet, if you conduct a search for metaverse groups on LinkedIn, you will see that some of the most well-supported groups are Web3 based.

These issues with image are also worsened by the current global challenges facing most markets.

The Metaverse's Image Problem Exacerbated in the Challenging Economic Environment

IMPACT


Even though the metaverse is a long-term play and, therefore, less directly impacted by issues in today’s market, these problems can delay progress in the buildup to this future, pushing out the eventual realization of the metaverse itself. Regardless of where you stand on Web3, as companies prepare for an economic downturn, this means fewer investments into riskier opportunities. The market has already seen numerous tech companies reducing headcounts and investments into fewer core activities. Coinbase (a crypto exchange company), for example, recently reduced its workforce by roughly 18% in preparation for a recession. Similarly, Meta, which recently announced its first Quarter-over-Quarter (QoQ) decline in revenue, is working to improve operational efficiencies, not only in preparation for an economic downturn, but also to address a changing marketplace—advertising, in particular.

Web3 certainly faced headwinds prior to the macroeconomic issues, but it is an additive effect. These previous problems include falling crypto prices and regulatory hurdles like those seen in China and India, and potentially soon the United States. These issues, however, also negatively impact perceptions of the metaverse due to the large number of people who view these as tied together.

When people see the prices of NFTs fall dramatically, many view this as evidence the metaverse is pure hype, and this is problematic for the industry. The metaverse is also disproportionately viewed from the consumer perspective, which is unfortunate considering the enterprise half has had more significant advancements to move the needle forward. What is needed is a better understanding and perception of the metaverse to best capitalize on its opportunities and benefits.

The Metaverse Viewed as Progress, Rather than Something "New"

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Rather than viewing the metaverse from the perspective of its long-term outcome, it needs to be framed as further advancements to preexisting market trends. Putting the metaverse into this context will allow companies to make better decisions about how to approach and invest in the buildup to the metaverse. Viewing the metaverse purely from the confines of 3D immersive environments belies the opportunities and market demands during the buildup.

Focus on Interoperability and Flexibility

Interoperability needs to come to the forefront of the metaverse discussion, especially on the enterprise side. 3D is still a key element, but many of the early enterprise companies looking at the metaverse are coming from a background strong in 3D (i.e., Computer-Assisted Engineering (CAE), simulation, and digital twins). The metaverse opportunity for these companies and their workforces, therefore, is less about a transition to 3D, but how 3D and immersive will impact how they collaborate, communicate, and market their products and solutions. Before these advancements in immersive become more commonplace, the focus needs to be on the key digital transformations many companies are currently undergoing.

Companies are coming into their digital transformations at various stages and levels of expertise; the platforms and partners they leverage to meet their goals need to adapt to their specific requirements. Given the economic headwinds, this flexibility is especially critical because companies may take a more conservative approach or prefer to stick with more pre-existing solutions as part of the transition process, rather than replacing/updating the entire workflow.

Focus on the Cloud

The cloud, and this includes the network edge, will continue to see workflows, platforms, and services migrate to it. In the simulation and digital twin markets, for example, the increasing complexities of models and simulations, coupled with larger hybrid datasets that leverage real-world and synthetic data, will favor scalable infrastructure and tip the balance further toward the cloud and external partners, especially for smaller firms with resources and hardware utilization rates that would not merit as intensive Capital Expenditure (CAPEX) investments.

Focus on Automation and Customer Service

As users become increasingly comfortable working with virtual avatars and Artificial Intelligence (AI) assistants, companies should also consider more advanced forms of automated customer service solutions. Companies like UneeQ and Soul Machines offer digital humans/AIs optimized for customer service that offer more natural and robust interactions than chatbots. Visualizing a 3D, lifelike avatar also imbues these sessions with a “human” touch that is not possible with voice or text alone. Customer service and relations are quickly becoming mission critical, especially as discretionary income declines due to poor economic conditions—even outside of economic downturns, these considerations about customer relationships will be critical to navigate the changing environment on privacy and digital identity.

Don’t Get Caught up in the Spectacle

Quite a bit of the negativity surrounding the metaverse stems from disagreements of what the long-term future holds, rather than what is possible today. This does not mean investments in virtual worlds or digital assets are not valuable marketing tools (they are, especially among younger consumers), but this is not all the metaverse has to offer. The Internet and web are good parallels to the metaverse because, while the user-facing element was truly transformative, it still required significant developments among devices, connectivity, and other technologies to make it all work and deliver the experiences it does today. The metaverse is no different and there is significant value to extract from this back-end.

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