Tech world’s poster boy Mark Zuckerberg’s giant bets on the metaverse are being met with concerns. Recently, a Meta shareholder termed the company’s mammoth investments into the Web3 technology largely defined by 3D immersive virtual worlds as “super sized and terrifying.”

Confronted with a question from an analyst during the firm’s Q3 2022 earnings call who sought to know if Meta’s experimentations with the metaverse were yielding results in terms of user engagement and whether the metaverse opportunity was “evolving in line with the company’s expectations,” Zuckerberg said that while a lot of people might disagree with this investment, it will be an important stepping stone towards building the future of technology.

“It would be a mistake for us to not focus on any of these areas, which are going to be fundamentally important to the future…and it’s some of the most historic work that we’re doing that people are going to look back on decades from now and talk about the importance of the work that was done here,” said the founder, CEO and chairman of Meta Platforms. Meta’s Reality Labs that is developing the building blocks for virtual world posted operating losses to the tune of $3.7 billion in Q3 and The Wall Street Journal recently reported that the company’s key metaverse offering for consumers, Horizon Worlds has failed to impress users.

How far and wide-ranging the implications of Meta’s not so welcoming attempt at building the metaverse will be on the broader metaverse and Web3 ecosystem is yet to be seen, but the hype around the whole concept has subdued in the past few months for sure. A lot of the hype cycle around the web3 and the metaverse in the last two years came from the capital being invested in that space.

That capital was the result of a decade long loose monetary policy with almost free cost of capital which meant the risk appetites were much higher. In order for investors to achieve any kind of meaningful yield, they were often seeking newer platforms, newer technology to be able to invest capital in, says Salone Sehgal, founding general partner at gaming and interactive media focused-VC fund Lumikai.

“In the last 12 months, with globally the cost of capital changing, funds pulling back capital from riskier bets, a lot of the public market companies coming under pressure and cutting allocations has meant that fundamentally risk appetites have changed. As a result, the risks of building the metaverse, the risks of building the blockchain are now becoming much more apparent, impacting people’s appetite,” says Sehgal.

Praneet Singhal, director at 1Lattice (formerly PGA Labs) points out that investors are becoming increasingly sensitive to the risks of the metaverse’s mass adoption, especially with Meta losing half of its value since it transitioned to a new brand identity, followed by major layoffs.

“Investments in VR, AR, and virtual worlds have also seen a dip in the recent quarters over the last year, but some big deals are still getting done,” says Singhal.

The broader question then is whether the metaverse is a fad or a long-term proposition? Analysts are divided over the issue. Deloitte pegs India’s potential 2035 economic impact of the metaverse at about $79-$148 billion per year or 1.3 to 2.4% of overall GDP. The rationale to back the estimates rests on the country’s young, digitally equipped population which is more likely to experiment with virtual worlds, a large tech talent pool that has the ability to contribute digital labor to the metaverse and an enabling approach undertaken by corporate.

“Large Indian corporations such as Infosys and Tech Mahindra have set up metaverse subsidiaries. Further, India’s unique cultural propositions in language, religion, and entertainment can give its metaverse offerings a distinct flavour, say analysts at Deloitte.

Devroop Dhar, co-founder & managing director at business and management consulting firm Primus Partners in fact, says that India already is home to about 11% of the Web3 tech talent globally. Dhar argues that the concept of metaverse is ‘quite sustainable’ and the rollout of 5G will only add to the adoption of the technology.

“Today, everyone has realised that the metaverse has some genuine use cases. In India, we are seeing early adopters in this space. There are quite a few corporate, conglomerates which are using it in large employee engagement programmes. We are seeing food joint, jewelry brands and even the automobile industry subscribing to the concept. The discussion today around metaverse is not about whether we should but what can we do, how can it help? 5G is a very important milestone which will enable more of this,” says Dhar.

Lumikai’s Sehgal is skeptical though. Sure, conglomerates are taking to the idea of metaverse but whether they have the ability to innovate at speed and attract sufficient talent to give shape to such futuristic technologies is the bigger question.

“Many of these conglomerates are publicly listed. If these are bets which are not very ROI positive, I won’t be surprised to see some of this capital being rolled back and projects being called off over a period of few quarters or so. For the metaverse as a persistent virtual world to be a reality, we need to solve for interoperability, concurrency and scalability, which are still some years away from being solved. Meta is struggling to achieve any kind of basic fidelity in its 3D world.

If you look at its quality, it looks like it was programmed and produced in 2010 as opposed to in 2022,” says Sehgal. Besides, user adoption of Web3 in India is still very low. The core cohort of users has not grown beyond the early evangelists and early adopters, despite considerable capital coming in to the consumer facing experiences and play to earn games. Also, gaming in India is popular only because 95% of the gaming market is dominated by mobile gaming which in many cases is free to access, argues Sehgal. “Affordability, frictionless access and accessibility of Web3 games are all current challenges. Investment in Web3 games also requires use of tokens and creation of wallets which require both financial sophistication and serve as financial barriers to play,” says Sehgal.

Kaavya Prasad founder at Web3 enabler Lumos Labs which is building a metaverse of its own is optimistic though. Prasad says that the metaverse is here to stay and the concept has been around since the 90s by way of immersive games. The concept has only assumed a different shape and form now.

“If you really look at this concept of metaverse/virtual world, around 2003 is when we had this game launch called Second Life which is a precursor conceptual wise to what is metaverse today,” says Dhar in an almost similar vein. However, the right approach to carve a space in such a nascent market should be to develop objective or utility driven metaverse platforms, at least in the initial stages.

“Objective or utility driven metaverse will start the trend of the mass adoption for metaverse. We are too early for general purpose metaverse which Meta is attempting to build,” says Prasad. Numerous debates around the metaverse continue to rage on but only time will hold the mirror to the future of the metaverse.

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