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What will save the metaverse from becoming a 'ghost town'?

Facebook CEO Mark Zuckerberg metaverse
Facebook CEO Mark Zuckerberg. Meta has spent more than $15bn on its Reality Labs metaverse venture since the beginning of 2021. Photo: Leah Millis/Reuters (Leah Millis / Reuters)

The metaverse is reportedly struggling to keep users, with blockchain data suggesting that one platform only had around 38 daily "active users".

Unless it can stop haemorrhaging users, the industry will not achieve its projected valuation of £5tn ($5.68tn) by 2030.

So what will it take for the metaverse to become a gold rush rather than a ghost town?

The metaverse is a computer-generated world, which aims to parallel our own, and is usually accessed via a headset that gives virtual images and surround-sound.

It's been hailed as a highly "realistic" way to connect, socialise, and work with people all over the world from the comfort of your couch.

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Within these digital worlds, virtual avatars represent users, allowing them to travel, interact and build communities. This is nothing new, as multi-player online games have allowed people to communicate via avatars in virtual environments for decades.

However, this has not deterred billions of dollars of investment pouring into the sector, with Meta (META) spending more than $15bn on its Reality Labs venture since the beginning of 2021.

More than $120bn was invested into metaverse companies in 2022, more than double the $57bn invested in 2021, according to a McKinsey research report.

Watch: A journey through the Metaverse | The Crypto Mile

But the investment in building a new virtual reality (VR) could be in vain. While the costly technology that creates immersive experiences within the metaverse is advancing, the number of users is falling, according to recent data from blockchain analysis platform DappRadar.

Meta had an end-of-year goal of 500,000 active monthly users of its metaverse app Horizon Worlds. However, according to the Wall Street Journal, recently released internal documents reveal that this goal has now been slashed to 280,000.

Other metaverse platforms were also struggling to attract and keep users, according to DappRadar.

Read more: Welcome to the metaverse that promises 'eternal life'

It was reported that Decentraland and The Sandbox metaverse platforms were each found to have fewer than 1,000 daily active users, despite a combined valuation of over $1bn.

A report by Coindesk stated that Decentraland, an ethereum-based (ETH-USD) virtual world, had only 38 active users in one 24-hour period, while a competing metaverse The Sandbox had just 522 active users on the same day.

Pan Bohang, founder of vHome, a virtual reality (VR) social gaming platform, wearing Meta's Oculus VR headset uses a touch controller to high-five with a user during a virtual gathering, as a screen shows the virtual content, at an office in Beijing, China January 21, 2022. Picture taken January 21, 2022. REUTERS/Tingshu Wang
Pan Bohang, founder of vHome, a virtual reality social gaming platform, wears Meta's Oculus VR headset during a virtual gathering. Photo: Tingshu Wang/Reuters (Tingshu Wang / reuters)

However, both platforms say these numbers don’t tell the whole story, as DappRadar's definition of an "active user" is one who has transacted with their digital wallet within the metaverse on that day.

So the statistics do not include those who visited the metaverse to walk around the virtual world and interact without making transactions.

The Sandbox has disputed the DappRadar metrics as they only reflect transactions between users or primary NFT sales.

Speaking to Yahoo Finance Co-Founder of The Sandbox Sébastien Borget said: "To measure engagement, we track the DAUs (Daily Active Users) and MAUs (Monthly Active Users). These are measured by industry standards, which define how many users are entering an experience of The Sandbox per day or per month. Users can enter The Sandbox regularly without necessarily purchasing NFTs or making a transaction on the blockchain, hence the activity on blockchain isn’t reflective of engagement."

According to the chief operating officer and co-founder of The Sandbox, the platform has 39,000 daily active users, based on its metrics.

However, the low daily transaction volumes are calling into question the metaverse's addressable market, which was estimated to be $38.85bn in 2021.

The size of the metaverse's market is forecast to expand in the coming years, with a market analysis report by Grand View Research suggesting it will have a compound annual growth rate of 39.4% between 2022 and 2030.

Management consulting firm McKinsey and Company estimated the metaverse sector could generate revenue of $5tn by 2030.

The report said: "Our bottom-up view of consumer and enterprise use cases suggests it may generate up to $5tn in impact by 2030, equivalent to the size of the world’s third-largest economy today, Japan."

Yahoo Finance UK spoke to Dr Christina Yan Zhang, head of The Metaverse Institute, who outlined three developments that need to take place to ensure the metaverse lives up to the hype.

US President Joe Biden looks at a quaantum computer as he tours the IBM facility in Poughkeepsie, New York, on October 6, 2022. - IBM's CEO Arvind Krishna announced Thursday a $20-billion investment in quantum computing, semiconductor manufacturing and other high-tech areas in its New York state facilities. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
US President Joe Biden looks at a quantum computer as he tours the IBM facility in Poughkeepsie, New York, on 6 October 2022. Photo: Mandel Ngan/AFP via Getty (MANDEL NGAN via Getty Images)

1. The metaverse needs quantum computing to reach its potential

Zhang said the metaverse needs quantum computing to work as virtual worlds need to be supported by computer chips that are thousands of times more powerful than those manufactured today.

The metaverse uses a vast amount of simulation, so quantum computing could enhance the overall experience of presence and immersion in a virtual environment.

Zhang added: "Currently, the technology does not exist for hundreds or millions of users to participate in a shared concurrent experience in the metaverse. Although some metaverse with high concurrencies have existed for decades, such as Second Life, they essentially spoofed the experience by 'sharding' and splitting users into different 'worlds' and servers. As a result, a player only really sees or interacts with a small handful of other players at any one time."

“To achieve the full potential of a metaverse where millions of users can interact concurrently, quantum computing could be a solution. This year’s Nobel Prize winners on quantum entanglement could potentially make it possible to create the IT infrastructure to realise the full potential of the Metaverse”.

2. Enterprise use-case for the metaverse

Focusing on an entertainment-based metaverse is short-sighted. Zhang said the macroeconomic environment demands that the metaverse becomes more than a place to play games and be entertained.

She added that at the present time, when the world is likely heading for recession, 75% of consumers are trading down across many economic sectors.

According to McKinsey research, 38% are cutting entertainment spending.

However, Zhang said companies are already developing enterprise use-cases for the metaverse.

The top enterprise use cases for the metaverse that companies are implementing are marketing campaigns or initiatives, learning and development for employees, meetings, events or conferences and product design or digital twinning, according to McKinsey.

Zhang said that big tech could work together towards a metaverse that becomes "the future of work".

“Both Meta and Microsoft (MSFT) view the metaverse as the next stage of workplace collaboration.

"Meta can capitalise on Microsoft Office’s loyal 1.2 billion users, Microsoft, in turn, benefits from Meta's users to boost its own enterprise metaverse and VR gaming ambitions.

Microsoft’s Work Trend Index data shows that 50% of Gen Z and millennials envision doing some of their work in the metaverse in the next two years.

The development of an enterprise use-case for the metaverse was backed by more than 3.5 million developers creating some 3,000 accelerated apps, she said.

Chip-maker Nvidia has also launched Omniverse Cloud Services – a metaverse-as-a-service cloud that could be used for building and operating industrial metaverse applications, according to Zhang.

Meta's Horizon Workrooms is an enterprise social VR space which is meant to emulate the experience of a real office in virtual reality. However, this has led to questions of why Meta would want to recreate a virtual version of an environment that some people strive to get away from.

3. Metaverse neural wristbands

Meta has revealed that it is developing wristbands that allow people to access VR and augmented reality (AR) applications via neural signals running through their wrists.

The device uses electromyography (EMG) sensors to translate electrical motor nerve signals into digital commands that you can use to control the functions of a metaverse-linked device. This gives a degree of control that’s intuitive, and learns to each user.

This is a user interface that is more natural than fitting a VR headset to your face. Many people feel uncomfortable using VR headsets, which has become a barrier to mass adoption of the metaverse.

In a 2021 interview with satirical site The Babylon Bee, Tesla (TSLA) boss Elon Musk mocked the idea of VR headsets and said: “I don’t know if I necessarily buy into this Metaverse stuff, although people talk to me a lot about it.”

He said: “You know when I grew up it was like ‘don’t sit too close to the TV it’s gonna ruin your eyesight’ and now TV is like literally right here against your face, I’m like what? Is that good for you?”

An attendee wearing a virtual reality (VR) headset tries out a VR application on the Meta Platforms Inc. booth at the Viva Technology conference dedicated to innovation and startups at Porte de Versailles exhibition center in Paris, France June 16, 2022. REUTERS/Benoit Tessier
An attendee tries out a VR application on the Meta Platforms Inc. booth at the Viva Technology conference in Paris, 16 June 2022. Photo: Benoit Tessier/Reuters (Benoit Tessier / reuters)

Zhang said: "You can't wear a VR headset 24/7. If you really want mass adoption the device must be natural, that can be used 24/7.

If you want any technology to be scalable on a global level, give the device to a child and test if they can use it and are comfortable using it."

Kurt Ivy, researcher and head of PR at ShopX Foundation, said: "If someone creates a working parallel universe, that's a big deal, but if there's nothing to do there, then there is no reason to visit on a daily basis.

"Think about the big luxury brands getting involved in Roblox, a platform made for kids. Why? They are trying to plant a flag in a new world where no one lives yet, but where everyone will be going soon.

"The current metaverses are essentially worthless, and their daily active users make perfect sense. But what will they be worth in a year? Five years? Will someone else make a better one by the time everyone is ready to move in?

"This is the new world and they have a first-movers advantage, so if we develop the technology to live on other planets, you better believe people will be buying land on the moon before there is anything developed on it or anyone lives there. The metaverse is the moon, and we just finished developing the technology for interstellar travel. No, no one is there yet, but we're all dying to go."

Wired magazine's product writer Eric Ravenscraft said on Twitter: "To anyone familiar with video games, online services, or even just internet culture, it was obvious that this was an early access ghost town. Yet outlets like the New York Times wrote glowing profiles of people "investing" in "the metaverse" based on....nothing?"

There needs to be a critical mass of consumers who are so excited about these virtual worlds they will begin transitioning their everyday activities into them.

Automotive, machinery and assembly practices, healthcare and public sector administration and academic virtual learning will need to be onboarded for the metaverse to hit its 2030 projected revenue.

Decentraland and Meta have been contacted about the daily active user numbers within their metaverse platforms, but have yet to get back with a reply.

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