By Gary Symons
TLL Editor in Chief
According to headlines in some top news and tech sites, October was a rough month for the metaverse.
In fact, if the dire projections from multiple media outlets were to play out as advertised, it’s fair to say the metaverse is a complete flop, and licensing companies should cut ties as fast as possible.
A story in the Wall Street Journal, for example, savaged the user numbers for Meta’s Horizon Worlds metaverse, while a report from blockchain activity monitor DappRadar went viral when it said the Decentraland metaverse had only 38 “active users.” As well, a report from Statista’s Advertising and Media Outlook research division said the adoption of Virtual Reality (VR) and Augmented Reality (AR) hardware has been slow, and that the industry is “still in its infancy.”
Certainly, if one paid attention only to those reports, then a prudent licensing executive may well decide the company’s time and money should be spent elsewhere.
The Licensing Letter’s own analysis, however, paints a very different digital picture of the metaverse industry’s evolution. While individual metaverse efforts may not be meeting expectations, the overall growth in the sector is impressive, even despite the negative influence of the recent crash in cryptocurrencies and NFTs, which as severely downgraded revenue and user data.
So, what to believe? Let’s take a deep dive into the numbers in an attempt to answer the question, ‘Is the metaverse worth your investment of time and money?’
Cutting to the chase, we believe that, yes, the metaverse is not only worth investing in for licensors and licensees, but it is also on track to become one of the most important sectors for licensing within five years.
In particular, we see the metaverse becoming integral to multiple categories, in particular Apparel, Art, Film, Television, Toys and Games, Music, Collectibles, and of course Video Gaming.
First, The Bad News
Let’s start by addressing the giant 3D elephant in the virtual room; the metaverse is indeed struggling to find its feet. However, rather than a sign of failure, we see that as the inevitable consequence of a new technology finding its way in a world filled with many other distractions. The metaverse isn’t so much a failed technology as a newborn fawn struggling to its feet for the first time. It will take a little time to learn to run, but when it does, it will run fast.
In other words, the real issue is that the hype ran ahead of the reality, and now is the time when initial enthusiasm for the metaverse inevitably runs into the reality that growth in a new sector is hard, and there will be failures. Some companies will succeed, others will fall, and many more will take longer than they expected to become viable.
And that’s a good segue to the topic of Meta’s difficult first year on its path to become a dominant player in the metaverse.
As the Wall Street Journal reported, citing leaked internal company documents, Meta has fallen far short of its initial targets for user engagement. The company initially predicted it would reach 500,000 monthly active users for Horizon Worlds but has more recently revised that target downwards to 280,000. As of October, Meta reported less than 200,000 monthly active users, but the most troubling metric is that most visitors to Horizon don’t return to the virtual world after the first month.
As the Wall Street Journal put it, “Meta’s social-media products, including Facebook, Instagram and WhatsApp, together attract more than 3.5 billion average monthly users—a figure equivalent to almost half the world’s population. Horizon is currently reaching less than the population of Sioux Falls, South Dakota.”
As the Journal points out, that’s a terrifying comparison to Meta’s other products, as Facebook, Instagram and WhatsApp collectively boast more than 3.5 billion average monthly users, or roughly half the population of Planet Earth.
“According to internal statistics, only 9% of worlds built by creators are ever visited by at least 50 people. Most are never visited at all,” the Journal reports, citing one leaked document that said ruthlessly, “An empty world is a sad world.”
Low Adoption of VR/AR Technology Causing Pessimism
Another report, this time from Statista’s Advertising and Media Outlook, poured more cold water on Meta’s grand experiment, and also provided some data that helps explain why Horizon Worlds and other similar metaverse platforms are having a hard time attracting users.
According to that data, the issue is that the adoption of both augmented reality and virtual reality hardware remains low, so most people don’t even have the hardware that makes the metaverse more than just another 3D video game.
When Meta founder and CEO Mark Zuckerberg announced the new $1500 US dollar Meta Quest Pro headset, he also predicted VR headsets would rapidly become the computing and communication tool of the future.
“We believe VR devices will help usher in the next computing platform—becoming as ubiquitous as laptops and tablets are today—and that people will use them in their everyday lives to access the metaverse,” Zuckerberg said in a Meta statement.
But according to Statista, that day is still far off. “Users of AR and VR devices are still few and far between, with growth projections until 2027 nowhere near the scale that would make mixed reality ‘the next computing platform’, at least for now.
“Statista estimates that 74 million will be using VR hardware this year, with AR users just short of 10 million worldwide. By 2027, both AR and VR are expected to have surpassed 100 million users worldwide, but that’s still a long shot from the billions of smartphone users across the planet.”
That combination of news, combined with a general sell-off of tech spots this year, conspired to see Meta’s valuation plummet by roughly 60% this year, and also has caused an overall decline in confidence that the future predicted by metaverse proponents will come to pass within a reasonable time.
What Happened to Decentraland and The Sandbox?
Equally alarming for those who bet on the metaverse were recent reports that VC-backed metaverse plays like Decentraland and The Sandbox have very few users. In particular, one report from blockchain analytics company DappRadar sent many investors into a panic.
According to DappRadar and hundreds of other publications that carried the story, Decentraland had only 38 “active users” in a recent 24-hour period, after raising more than $1.2 billion to build and market its virtual world.
Decentraland’s primary competitor, The Sandbox, fared almost as badly in that report, showing only 522 active users in the same time frame. Equally alarming, the report said The Sandbox has only ever hit a maximum daily active user count of 4,503, and Decentraland has never managed to hit 675 active users.
Since that report came out, Decentraland in particular took pains to point out that DappRadar was not actually counting active users, but actual wallet transactions, which require someone taking out their crypto wallet and buying something. In fact, Decentraland says it had about 8,000 active users that day, and DappRadar has since said it will change the way it tracks active users on the platform.
Decentraland also makes the point that it is a young company, and that it has been impacted by the recent crash in valuations for both NFTs and cryptocurrrencies.
“If you look at Decentraland’s DAU numbers over the past year, it’s true that you will see a decline in overall numbers since the early metaverse hype of late 2021 when terms like ‘NFT’, ‘Web3’, and ‘metaverse’ were just starting to have a real presence in the mainstream,” Decentraland said in a statement after the DappRadar report. “But that’s to be expected as the metaverse is still very much in its early days and still has much growing and developing to do. The number of tourists and speculators visiting the metaverse has decreased, but the community, a core of metaverse citizens, is steadily growing. The metaverse may still be a new place, but it certainly is not a lonely one.”
Still, 8,000 is not a big number, and the tech trend publication The Verge had some fun with Decentraland’s clarification by comparing that number with the roughly 18,000 people who play the well-aged zombie game Left 4 Dead 2, which was released in 2009!
Combined with the reports of low user numbers on Meta’s Horizon Worlds platform, the news was enough to send the crypto and blockchain world into full freakout mode, and has given metaverse skeptics plenty of ammunition to snipe at the very concept of Web 3.0.
One media professor, Edward Castronova from Indiana University, recently said on CNBC, “The metaverse is El Dorado for internet startups. They chase it into the jungle and die.”
No offence to Professor Castronova, but in reality, saying the metaverse is where startups go to die is like trying to start up a horse and buggy factory five years after the Model T Ford came out.
When TLL first covered the rise of licensing in the metaverse two years ago, this publication cautioned that there would be plenty of missteps along the way, and that in particular the rampant speculation in the NFT markets was going to not only lead to a crypto market collapse, but also harm the overall reputation of metaverse startup companies, just as the dot-com bubble caused so many internet companies to fold in 1999-2000.
So, what is the truth about the future of the metaverse? More importantly, should licensing companies continue to pursue deals in the metaverse space?
The Good News: The Metaverse is Here to Stay
The Licensing Letter firmly believes that, despite the recent and wholly expected spate of bad news, the metaverse is in fact growing at an incredibly rapid pace, and will very soon become a multi-trillion dollar industry.
The question is not whether the metaverse will survive, but rather it’s whether certain companies will survive. Just as many promising early internet companies imploded in the early 2000s, so too will many early metaverse companies take wrong turns that will delay their success, or cause their demise.
The overall direction of the metaverse itself, however, is much further along the road to success than most people know.
While it’s wise to be cautious about jumping into deals with new metaverse companies, it’s also true that no licensing company or division can afford to ignore the growing value of the metaverse. In this case, too much caution can be more dangerous than too little. The trick is, how to keep track of where the real action is happening? As usual, the truth can be found in the numbers, and the real numbers behind the evolution of the metaverse are not found in newer startups like Decentraland, The Sandbox or even Horizon Worlds, but in the true pioneers of the metaverse, like Roblox, Minecraft, and Epic Games, among others.
The Truth About The Metaverse in Data
While critics have slammed the metaverse concept by exposing low user numbers at metaverse startups, the truth is that the metaverse is actually a crowded space. Here are some quick numbers that paint a more accurate picture of the market opportunity.
- According to Gartner, 25% of people on the planet will spend up to an hour a day in the metaverse, and 30% of businesses and organizations will have either products or services for sale in the metaverse.
- A report by eMarketer gives the lie to skepticism about VR device sales, saying 64 million Americans will be using Virtual Reality monthly in some form before the end of 2022. That’s about 20% of the US population, but another report from Statista says that 74% of Americans polled said they intend to enter the metaverse.
- In line with those numbers, another report from Statista found that the number of VR users doubled in just three years, from 2018 to 2021. Even more impressive, sales are expected to accelerate, as the number of VR users is projected to triple between 2020 and 2023, from just over 30 million to well over 90 million.
- Adoption of the metaverse is generational. Older people are less likely to adopt the metaverse, and tend to underestimate its importance, because metaverse users are led by teenagers who spend a lot of time on Roblox, Minecraft and Fortnite. According to a survey from New Zoo, 59% of metaverse users are male, and 38% are under the age of 20.
- The market size of the metaverse already surpasses that of more mature sectors. By 2020, Bloomberg famously reported that the metaverse was already worth more than $478 billion with a compound annual growth rate of 13.1%, and that it would be worth $800 billion by 2024. By contrast, the global video game market is currently worth just under $200 billion.
- Bloomberg isn’t the only one bullish on the metaverse market. The global banking giant Citi Group predicts rapid growth will continue, with the metaverse valued at between $8 trillion to $30 trillion by 2030, just eight years from now. That’s a LOT of VR headsets, just sayin’.
- Roblox remains the largest metaverse company by active user count. In Q1 2022 the company hit a new high of 54.1 million daily active users (DAU), up from 13.7 million at the end of 2018.
- Competitor Minecraft is also no slouch, hitting a new high of 173 million monthly users in August 2022, an average of more than five million users a day.
Nevertheless, it’s still common to hear people say that adoption of VR headsets is too slow, that the low numbers of users in newer metaverse worlds shows the weakness of the entire sector, or even that the metaverse is a fad that will soon disappear.
What those prognosticators don’t tell you, however, is that this kind of adoption curve is more common than not in the tech sector. I still remember getting my hands on the first commercially available cellphone, a massive Motorola DynaTac (aka ‘The Brick’) that came out in 1983. I got to use it years later mainly because I was a reporter who covered disasters, so I could sign it out for things like plane crashes or forest fires and the like.
Weighing in at a hefty two pounds, the DynaTac provided only 30 minutes of talk time and took a tedious 10 hours to charge, and it was insanely expensive at a cost equivalent to $10,000 in today’s currency. Not surprisingly, Motorola only sold 1,200 of these beasts in the first year, and many people questioned whether cellphones would ever become an ubiquitous technology that the average person would carry.
Flash forward to 1998, however, and cellphone devices and services accounted for two-thirds of Motorola’s sales.
The same thing happened with smartphones, which transformed the world by literally putting a powerful computer into everyone’s pocket or purse. Back in 2007 when the first iPhone came out, only 122 million smartphones were sold, about double the number of VR headsets in use this year. Only eight years later, in 2015, annual smartphone sales surpassed 1.4 billion units, making smartphones an ubiquitous technology.
Like the cellphone and the smartphone, VR and AR technology is really still in its infancy, and it can be difficult for many people to wrap their heads around the use cases that could make them equally as ubiquitous, but TLL believes that day is coming, no matter what the naysayers may predict.
At this point, if you’re asking whether it’s worth the risk to invest in metaverse licensing, the answer is it’s too risky not to.