Can Blockchain Growth Really Help Metaverse? | nasscom

The global technology landscape is undergoing a paradigm shift. The wave of digital disruption continues to grow stronger as new technologies and solutions based on them keep entering the market. With its perceived potential to impact almost every aspect of modern businesses, the metaverse has managed to garner a lot of hype among players across industries. Simply put, a metaverse is a virtual shared space, created by the convergence of virtually enhanced physical and digital reality. This space is neither unit-independent nor owned by a single supplier. Rather, it is an independent virtual space, with key enablers such as digital currencies and non-fungible tokens (NFTs). Metaverse can be seen as an amalgamation of various technologies that come together to offer it the features it is known for.

How does blockchain contribute to the Metaverse?

While some not-so-new technologies such as cloud, artificial intelligence and AR/VR offer some critical opportunities for metaverse, blockchain alone offers a large part of the possibilities. The figure below shows the top metaverse technologies as perceived by the managers (respondents).

It is clear that cryptocurrency, web3, blockchain and Nonfungible Tokens (NFT) are some of the most important metaverse technologies. Since blockchain is one of the building blocks of cryptocurrencies, web3 and NFTs, it would not be wrong to think of it as one of the most important building blocks of the metaverse. Therefore, some of the future growth of metaverse can be attributed to the flow of investments in blockchain, along with investments in metaverse applications such as e-commerce, gaming, concerts, and social and entertainment events. However, the current state of the metaverse market is one of the pressing concerns for both investors and technology providers.

What do we know about the current market situation?

One of the leading innovators in the metaverse space, Meta Platforms Inc., has recorded significant losses in its Reality Labs division. Reality Labs is the unit of Meta that focuses on the metaverse. So far, investors are less than thrilled with the performance of this division.

Meta lost approximately $13.7 billion on Reality Labs in 2022, nearly 35% more than what it had lost on the division in 2021. During the same period, revenue from the division fell from $2.27 billion to $2.16 billion.

In other words, the company through its Reality Labs division lost more than 6 times the money it generated in 2022. This was worse than the 4.5 times loss it had recorded in 2021. The company expects Reality Labs operating loss to grow significantly even in 2023. Beyond 2023, the company expects to plan investments in Reality Labs in a way that enables them to achieve their long-term goal of increasing their overall operating income.

While this sounds reassuring to some extent, there are still signs that companies are losing faith in the metaverse. In March 2023, Disney fired its 50-person metaverse team, suggesting that enthusiasm for the project was waning. Earlier in February 2023, Microsoft reportedly terminated its 100-member Industrial Metaverse Core team that was founded last October. Very recently, Walmart Universe of Play left the Roblox metaverse. While some companies continue to stick with the metaverse to offer an out-of-this-world experience to their customers, fading enthusiasm among some technology vendors for the metaverse indicates dim prospects for this market growth.